Gujarat High Court
Shree Rama Multi Tech Limited vs Regional Director on 20 February, 2020
Author: S.R.Brahmbhatt
Bench: S.R.Brahmbhatt, A.G.Uraizee
C/OJA/42/2015 CAV JUDGMENT
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/O.J.APPEAL NO. 42 of 2015
In
R/COMPANY PETITION NO. 247 of 2008
With
F/COMPANY APPLICATION NO. 1805 of 2017
In
O.J.APPEAL NO. 42 of 2015
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR.JUSTICE S.R.BRAHMBHATT
and
HONOURABLE MR.JUSTICE A.G.URAIZEE
=============================================
1 Whether Reporters of Local Papers may be
allowed to see the judgment ?
2 To be referred to the Reporter or not ?
3 Whether their Lordships wish to see the fair copy
of the judgment ?
4 Whether this case involves a substantial question
of law as to the interpretation of the Constitution
of India or any order made thereunder ?
=============================================
SHREE RAMA MULTI TECH LIMITED
Versus
REGIONAL DIRECTOR
=============================================
Appearance:
MR. S.N. SOPARKAR SENIOR ADVOCATE WITH MRS SWATI
SOPARKAR, ADVOCATE for the Appellant No. 1
MR DEVANG VYAS(2794) for the Opponent No. 1
MR MAULIN RVAL ADVOCTE FOR M/S R.J.RAWAL ASSOC.,
ADVOCATE for the Respondent No.2
=============================================
CORAM: HONOURABLE MR.JUSTICE S.R.BRAHMBHATT
and
HONOURABLE MR.JUSTICE A.G.URAIZEE
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C/OJA/42/2015 CAV JUDGMENT
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CAV JUDGMENT
PER : HONOURABLE MR.JUSTICE S.R.BRAHMBHATT)
1. Heard learned counsels appearing for the parties.
2. The present O.J. Appeal has been preferred being aggrieved and dissatisfied with the order dated 15.07.2015 passed by this Court in Company Petition No.247 of 2008 in Company Application No.401 of 2008, whereby a scheme of arrangement in the nature of compromise with various classes of creditors as well as reduction of share capital is rejected inter alia on the ground that the requisite material was not placed before the shareholders and creditors at the time of meeting so as to take informed decision and for approving scheme of arrangement.
3. Facts in brief, as could be culled out from the memo of the appeal and the order impugned deserves to be set out as under:
3.1 The appellant company originally started its business in the form of a partnership firm in the year 1986 under the name and style of Shree Rama Packaging. Later on the partnership firm was converted into public limited company on 17.12.1993. The appellant company was engaged in the business of packaging material. The appellant company had made substantial investments in mid 1990 in capacity expansion and modernization which could not yield commensurate expected returns. As per the averment made in Page 2 of 30 Downloaded on : Fri Feb 21 01:56:21 IST 2020 C/OJA/42/2015 CAV JUDGMENT the petition, in the year 2008, the Company owed the principal dues of Rs.377.9 crores and further all outstanding towards interest, penalty and other dues thereon to various lenders as on 01.04.2008. The contingent and disputed liabilities would be in excess of Rs.130 crores. It is further averred that the company is able to function only due to generation of internal accruals without having any fund based banking facilities. The petitioner-company was facing financial difficulties on account of various market conditions. The company had, therefore, approached the Board for Industrial and Financial Reconstruction (`BIFR' for short) for seeking a reference for declaration as a sick company in September, 2005 and again in August, 2006. It was registered as Case No.69 of 2006. However, the same was rejected by order dated 28.12.2006, against which the petitioner preferred Appeal No.61 of 2007, wherein the matter was remanded back to BIFR. However, vide order dated 16th July 2014, BIFR passed an order deregistering the reference filed by the appellant company on the ground that the company is no more a sick industrial unit.
3.2. The appellant-company has given the reason for the need for restructuring in paragraph 7.3 of the company petition and material provisions of the proposed scheme of arrangement and compromise are provided in paragraph 9 of the petition.
3.3. Earlier a scheme of compromise with the creditors was proposed by the petitioner company and a petition being Company Petition No.111 of 2005 was submitted to this Court Page 3 of 30 Downloaded on : Fri Feb 21 01:56:21 IST 2020 C/OJA/42/2015 CAV JUDGMENT in the month of June 2005, however, since the scenario had changed and the terms offered vide the said scheme in collaboration with the investors were different, the said scheme was withdrawn. Thereafter, new scheme was filed being Company Petition No.403 of 2007 and the same was also withdrawn on 11.04.2008. Thereafter, the new scheme was placed before lenders and shareholders for their consideration.
3.4. The petitioner-company has also pointed out in the company petition that this Court passed an order on 16.07.2008 directing the petitioner company to convene separate meetings of equity shareholders, preference shareholders, class `A' lenders, class `B' lenders of the company for the purpose of considering and if thought fit, approving with or without modification the said composite scheme of compromise and arrangement. In pursuance to the said order passed by this Court, notice of meetings were sent individually to all the equity shareholders, preference shareholders, class `A' lenders and class `B' lenders of the company together with copy of the aforesaid scheme and explanatory statement required under Section 393 of the Act and a form of proxy. Notice of meetings were also advertised as directed by this Court in the concerned newspapers.
Meetings of different class of persons were held and as per the averment made in the petition, in all the different meetings, the scheme was approved by the statutory majority.
3.5. Thus, since the proposed composite scheme of compromise and arrangement has been duly approved by Page 4 of 30 Downloaded on : Fri Feb 21 01:56:21 IST 2020 C/OJA/42/2015 CAV JUDGMENT statutory requisite majority by equity shareholders, preference shareholders, class `A' lenders, class `B' lenders at the respective meetings, the petitioner-company has moved this petition for seeking sanction of the said composite scheme.
3.6 This Court on 23.9.2008 admitted the Company Petition and notice of admission was issued in the concerned newspapers. One of the shareholders of the petitioner- company who is holding 5,000 shares of the petitioner- company has filed the objections against the proposed scheme of arrangement.
3.7 In the said objections, he has mainly stated that the scheme of arrangement proposed by the petitioner-company is not bonafide and is proposed only with a view to give undue benefits to Nirma Industries and its group and/or sister concern. The proposed scheme is not at all workable, against the interest of the company, its shareholders, creditors and members. The said scheme is oppressive to the minority shareholders and also fraud against the company and its shareholders. The proposed scheme is unfair and is designed to evade the liability of single largest investor Nirma to pay under the takeover code. The proposed scheme is designed to avoid and evade the effect of the prohibitory orders passed by SEBI under Section 11 and 11(B) of Securities and Exchange Board of India Act, 1992 (`SEBI' Act) read with regulation 11 of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Security Market) Regulation, 2003. The petitioner- company has suppressed the fact that investor Nirma Page 5 of 30 Downloaded on : Fri Feb 21 01:56:21 IST 2020 C/OJA/42/2015 CAV JUDGMENT Industries and its sister concern had made a public offer in view of takeover code and offered Rs.18.60 per share. It is also suppressed by the petitioner that Nirma had subsequently applied for withdrawal of the said public offer and the SEBI had rejected the said application. Nirma Industries thereafter preferred an appeal before the Security Appellate Tribunal ('SAT' for short) which also confirmed the order of SEBI. Nirma Industries and Nirma Chemical Works Limited are legally not entitled to vote. The petitioner- company had on two occasions filed similar scheme of arrangement before this Court and the same has not been approved. The petitioner-company had withdrawn the said two objections. There is no change in the circumstances after withdrawal of the said scheme and hence, the principle of res- judicata would be applicable. The petitioner-company has not complied with the mandatory requirement of Section 391 of Companies Act of 1956, as public notice has been issued only in Ahmedabad Edition of English daily, whereas, as per records of the petitioner-company, several persons holding substantial shares in the capital of the petitioner are located and/or residing at many places within India. Nirma Industries has not completed the requirements of takeover code and hence as per Regulation 10 of the SEBI (Substantial Acquisition of Shares and Takeover) Regulation, 1997, Nirma Industries Limited and its sister concern which hold more than 15% of the shares do not acquire any voting right. The mandatory requirement of Section 101 of the Companies Act are required to be followed. That the prohibitory orders passed by SEBI were not disclosed in the respective meetings of various class of shareholders and lenders and thereby the petitioner-company has violated the provisions of Section Page 6 of 30 Downloaded on : Fri Feb 21 01:56:21 IST 2020 C/OJA/42/2015 CAV JUDGMENT 391(2) of the Companies Act. Against the order passed by SAT, Nirma has preferred SLP before the Hon'ble the Supreme Court and if the said SLP is dismissed, then the Nirma i.e. investors of the present scheme will have to pay Rs.18.60 per share to all the shareholders of the petitioner- company as well as the nature of its investment in the scheme will drastically and radically change. It is, therefore, stated in the said objections that the scheme in the present form is not at all viable and, therefore, the same be rejected.
3.8 The learned single Judge vide CAV judgment dated 15.07.2015 dismissed the Company Petition by recording that it is clear from the record that all the material facts were not disclosed before the voters in the respective meetings nor the same was placed before this Court along with the petition and, therefore, the Court is not satisfied with the scheme proposed by the petitioner company and, therefore also the present petition is required to be dismissed on this ground also. Being aggrieved by the same, the present appeal is preferred.
4. Learned counsel for the appellant submitted that impugned judgment and order passed by the learned Company Judge is contrary to law and facts on record. The learned single Judge has failed to appreciate that respondent no.2 has raised this objection merely for the purpose of arm twisting the appellate company and delay the proceedings. It is stated that respondent no.2 holds only 5000 shares out of total 200000000 shares. Therefore its shareholding is 0.0025% of the total shareholding. The scheme is duly approved by requisite majority in all the meetings. Under the circumstances a person with such small shareholder ought not Page 7 of 30 Downloaded on : Fri Feb 21 01:56:21 IST 2020 C/OJA/42/2015 CAV JUDGMENT be permitted to challenge the commercial wisdom of other lenders and shareholders on the grounds which are non- existent.
5. Learned counsel for the petitioner further submitted that the learned single Judge ought to have appreciated that at the time when the petition for sanctioning the scheme was considered the reference before the BIFR had come to an end. It is stated that vide order dated 16.07.2014, the BIFR passed an order deregistering the reference filed by the appellant company on the ground that the company is no more a sick industrial unit. Hence, no proceedings were pending before the BIFR when the matter was considered. Under the circumstance jurisdiction of this Hon'ble Court was not barred at the time of consideration of petition for sanctioning the scheme of arrangement in the nature of compromise.
6. Learned counsel for the petitioner further submitted that the learned single Judge has wrongly applied the ratio laid down in judgment of Tata Motors Limited vs. Pharmaceutical Products of India, reported in AIR 2008 SC 2805, NGEF Ltd. vs. Chandra Developer Pvt. Ltd., reported in (2005) 68 CLA 324 inasmuch as these judgments only provides that jurisdiction of company judge under Section 391 to 394 of Companies Act, 1956 will be subject to SICA which is a special statute. It does not states that any scheme presented before the court pending the reference before the BIFR is liable to be rejected.
Page 8 of 30 Downloaded on : Fri Feb 21 01:56:21 IST 2020 C/OJA/42/2015 CAV JUDGMENT7. Learned counsel for the petitioner submitted that the learned single Judge has erred in rejecting the petition on the ground that the scheme of arrangement in the nature of compromise was framed in 2008 and it has become stale to be implemented in present. It is submitted that the learned single Judge has power to modify the scheme under Section 392 of the Companies Act, 1956 in case where it is of the opinion that the scheme of arrangement or compromise is not workable in its present form. The learned single Judge ought to have modified the scheme to the extent required in case where it was of the opinion that the dates provided in the scheme needs some modification.
8. Learned counsel for the petitioner further submitted that learned single Judge has erred in holding that material facts with respect to the proceedings before the securities appellate tribunal were not disclosed before the creditors and shareholder at the time of meeting and before this Court. It is submitted that SEBI has passed an order against Nirma Industries Limited. There was no order passed against the appellant company. Therefore, the appellant company is not obliged to disclose this fact under the law inasmuch as proceedings related to third part will not come within the purview of material facts relating to the company, such as the latest financial position of the company latest report on the accounts of the company, the pendency of any investigation proceedings in relation to the company under Section 235 to 351 and the like.
9. Learned counsel for the appellant relied upon the following judgments:
Page 9 of 30 Downloaded on : Fri Feb 21 01:56:21 IST 2020 C/OJA/42/2015 CAV JUDGMENT(i) In case of Union of India Vs. Ambalal Sarabhai Enterprises Ltd., decided by this Court on 30.07.1983, reported in 1984 (147) ITR 294;
(ii) In case of Vodafone Essar Gujarat Limited Vs. Department of Income Tax, decided by this Court on 27.08.2012, reported in 2013 (353) ITR 222;
(iii) In case of Department of Income Tax Vs. Vodafone Essar Gujarat Ltd. & Anr., reported in 2015 (373) ITR 525;
(iv) In case of Arati Dutta Vs. M/s. Eastern Tea Estate (P) Ltd., reported in (1988) 1 Supreme Court Cases 523;
(v) Learned counsel for the appellant relief upon the judgment in case of Rossell Industries Ltd. And Another, rendered by Calcutta High Court, reported in AIR 1996 Calcutta 257, and laid emphasis upon paragraph nos.15, 18, 19 and 20, and submitted that once the scheme has been passed by statutory majority and requirements of the statute have been carried out, the onus to show unfairness is on objectors. He submitted that the scheme is not oppressive to he minority shareholders. The scheme, as proposed is sanctioned.
(vi) In case of Bank of India Vs. Ahmedabad Manufacturing & Calico Printing Co Ltd., decided on 01.09.2071 by the High Court of Bombay, reported in 1972 Page 10 of 30 Downloaded on : Fri Feb 21 01:56:21 IST 2020 C/OJA/42/2015 CAV JUDGMENT (42) Comp Case 211 and laid emphasis upon paragraph nos.8, 9, 10 and 14;
(vii) In case of K. Raveendranathan Nair Vs. Commissioner Of Income Tax & Anr., decided by the Supreme Court on 10.08.2017;
(vii) The counsel for the petitioner relied upon the judgment in case of Reliance Natural Resources Ltd. Vs. Reliance Industries Ltd., reported in 2010 (7) SCC 1, 2010, and submitted that the learned single Judge can modify the scheme.
(viii) In case of Nand Prasad And Others Vs. Arjun Prasad And others, reported in AIR 1959 Patna 293 and laid emphasis upon paragraph nos.6 and 8;
(ix) In case of Lawrence Dawson And Another Vs. J. Hormasji And Others, decided by Rangoon High Court on 20.07.1932 and laid emphasis upon paragraph nos.71 and 74;
(x) In case of Madras Bar Association Vs. Union of India, reported in 2015 (15) SCC 657;
(xi) In case of Amerzinc Products Pvt. Ltd. Vs. State of Gujarat, reported in 2009 (0) GLHEL-HC 222156 and laid emphasis upon paragraph nos.14, 15, 17, 31, 34 and 36;
(xii) In case of Shree Balaji Cinevision (India) Pvt. Ltd. Vs. State of Gujarat, reported in 2010 (5) GLR 4322 and laid emphasis upon paragraph nos.11, 12, 13, 15, 25, 29, Page 11 of 30 Downloaded on : Fri Feb 21 01:56:21 IST 2020 C/OJA/42/2015 CAV JUDGMENT 32 and 34.
10. Learned counsel for the respondent submitted that the proposed scheme is framed in the year 2008 and, therefore, at present it is a stale scheme and hence it will not work in the year 2015. During this period, number of things have been changed.
11. Learned counsel for the respondent further submitted that against the order dated 5.6.2008 passed by SAT in Appeal No.74 of 2007 filed by Nirma Industries Limited and Nirma Chemical Works Limited, the said company has preferred SLP before the Hon'ble the Supreme Court and the Hon'ble Supreme Court has dismissed the said SLP whereby it confirmed the order passed by SEBI and SAT. The said decision is reported in AIR 2013 SC 2360.
12. Learned counsel for the respondent further submitted that the petitioner has not placed on record the order dated 06.06.2008 passed by SEBI passed in the matter of the petitioner under Section 11 and 11(B) of the SEBI Act and Regulation 11 of the SEBI Regulations 2003 as well as the order dated 05.6.2008 passed by SAT in case of Nirma Industries Limited before this Court.
13. Learned counsel for the respondent further submitted that in the petition, there is reference with regard to pendency of reference before the BIFR. This petition is filed in the year 2008. At that time, reference was pending before BIFR. However, from the affidavit filed by the Director of the petitioner on 25.06.2015 produced at page 379, it is clear that Page 12 of 30 Downloaded on : Fri Feb 21 01:56:21 IST 2020 C/OJA/42/2015 CAV JUDGMENT recently by order dated 16.7.2014, BIFR has held that the company has ceased to be a sick industrial company and the company is discharged from the purview of SICA/BIFR. Thus, on the date of filing of this petition, it was not maintainable and, therefore, the petitioner cannot take advantage of the order which is passed in the year 2014.
14. Learned counsel for the respondent further submitted that the objection is taken by the Axis Bank one of the secured creditors by communication dated 25.08.2008.
15. Learned counsel for the respondent further submitted that material facts relating to the company about the pendency of the investigation proceedings in relation to the company under Section 235 to 351 and the "like" are not disclosed and, therefore, no order sanctioning the proposed scheme can be passed by this Court.
16. Learned counsel for the respondent submitted that the material facts with regard to the prohibition order passed by SEBI against the petitioner and order passed by the SAT against Nirma and its sister concern were not placed before the meeting of the respective shareholders and lenders. If such facts were disclosed by the petitioner-company in the respective meetings, perhaps, the respective shareholders and lenders would not have voted in favour of the scheme.
17. Learned counsel for the respondent relied upon the following judgments:
(i) In case of Madras Bar Association Vs. Union Of Page 13 of 30 Downloaded on : Fri Feb 21 01:56:21 IST 2020 C/OJA/42/2015 CAV JUDGMENT India, reported in 2015 (15) SCC 657;
(ii) In case of Shree Balaji Cinevision (India) Pvt.
Ltd. Vs. State of Gujarat, rendered by this Court in Company Petition No.100 of 2009 dated 14.09.2009;
(iii) In case of Nirma Industries Limited Vs. Securities And Exchange Board, reported in 2013 (8) SCC 20;
(iv) In case of Amerzinc Products Pvt. Ltd. Vs. State of Gujarat, rendered by this court in Company Petition No.110 of 2009 dated 14.09.2009;
(v) In case of Wood Polymer Limited Vs. State of Gujarat, rendered by this Court in Company Petition No.10 of 1975 on 31.01.1977;
(vi) In case of Seksaria Cotton Mills Ltd. Vs. A.E. Naik And Ors, reported in AIR 1967 Bom 341;
(vii) In case of Bank of Baroda Ltd. Vs. Mahindra Ugine Steel Company Limited, rendered by this Court in Company Petition No.4 of 1975 dated 07.04.1975;
(viii) In case of Miheer H.Mafatlal Vs. Mafatlal Industries, reported in 1997 (1) SCC 579;
(ix) In case of Divya Prints Pvt. Ltd. Vs. Sesa Seat Information Systems, rendered by this Court, reported in 2000 JX (Guj.) 284;
Page 14 of 30 Downloaded on : Fri Feb 21 01:56:21 IST 2020 C/OJA/42/2015 CAV JUDGMENT(x) In case of Meghal Homes Pvt. Ltd. Vs. Shree Niwas Girni K.K.Samiti, reported in 2007 (7) SCC 753;
(xi) In case of Horst Kurves Gmbh Vs. Essar Oil Limited, reported in 2002 (2) GLR 1314;
(xii) In case of Madura Coats Limited Vs. Modi Rubber Limited, reported in 2016(7) SCC 603;
(xiii) In case of Uti Bank Ltd. Vs. Rama Multitech Limited, reported in 2005 (126) CC 15;
(xiv) In case of In Re Vs. State of Gujarat, reported in 1977 (109) ITR 177;
(xv) In case of Ngef Limited Vs. Chandra Developers Private Limited, reported in 2005 (8) SCC 219;
(xvi) In case of Miheer H. Mafatlal Vs. Mafatlal Industries, reported in 1997 (1) SCC 579;
18. The Court has heard learned counsels for the parties and perused the memo of the appeal, annexures, Company Petition and the order of the learned single Judge. Before adverting to the rival contentions of the learned counsel for the parties, it would be most appropriate to enlist hereinbelow few indisputable aspects emerging there from for appreciating the controversy in its proper perspective namely:
(i) The appellant was originally started a partnership Page 15 of 30 Downloaded on : Fri Feb 21 01:56:21 IST 2020 C/OJA/42/2015 CAV JUDGMENT firm in the year 1986 under the name and style of Shree Rama Packaging. Subsequently, the said partnership firm was converted into public limited company on 17.12.1993. It is said to have been engaged in business of packaging material and it has facilities at various locations and it is averred in the memo of the petition that the facilities at Motibhayan and Ambaliyara,, Taluka- Kalol, Dist.- Mehasana were in operation at the relevant point of time.
(ii) The appellant Company appears to have approached Board of Industrial and Financial Reconstruction (hereinafter referred to as the 'BIFR' for short) for declaration as sick company which was treated as Case No.69 of 2006.
The same came to be rejected vide order dated 28th December, 2006. An appeal against the said order being Appeal No.61 of 2007 was filed and the appellate bench remanded the matter to BIFR. Subsequently, the said reference proposal was withdrawn as it was deregistered by the competent authority of board on 16.07.2014.
(iii) The Company appears to have filed petition being Company Petition No.111 of 2005 in June, 2005 for requiring sanction for the arrangement and compromise with its creditors. The Same was withdrawn for the reasons stated in the affidavit.
(iv) A new petition came to be filed being Company Petition No.403 of 2007, which also had been requested to be withdrawn and the Court granted permission to withdraw as per the order dated 11.04.2008.
(v) Therefore, the present company petition was Page 16 of 30 Downloaded on : Fri Feb 21 01:56:21 IST 2020 C/OJA/42/2015 CAV JUDGMENT preferred. The petition came to be admitted on 23.09.2008. The notice for hearing of the petition was duly advertised in the newspaper on 30.09.2008 and the publication in the Government Gazette was dispensed with. The respondent no.2 appears to have approached this Court being a shareholder for objecting the said scheme and arrangement. The objections were that the scheme and the arrangements were not bonafide. It was alleged to have been designed to benefit the single larger investor to circumvent the orders of SEBI, and it was after suppression of material facts before the stake holders as well as Court.
(vi) The Court after hearing the parties accepted the objection and dismissed the petition vide order dated 15.07.2015 where from the present O.J. Appeal is arisen being O.J. Appeal No.42 of 2015.
19. Against the factual backdrop of the matter, this Court is called upon to decide the rival contentions in respect of the challenge to the order passed by learned single Judge on 14.07.2015 by way of the present O.J. Appeal.
20. The learned counsel for the appellant contended that the objections were not so grave or material as to non- suit the appellant, as the fundamental principle in respect of the scheme of arrangements and compromise with the creditors is dependent upon the consent and consideration with the stake holders and in case of the stake holders are consenting by and large, then the few voice of dissent in form of objection cannot be heard and be permitted to create hurdle in the way of the compromise. The judgments have Page 17 of 30 Downloaded on : Fri Feb 21 01:56:21 IST 2020 C/OJA/42/2015 CAV JUDGMENT been cited to support his contention and it was vehemently submitted that the objector is only holding 5,000 shares out of 200000000 shares and proportionately thus it can be said that his holding is 0.0025% only. It was also contended that the learned single Judge ought to have appreciated the fact that the other creditors and shareholders of the Company were not before the Court resisting the scheme of compromise and arrangements, as sought to be implemented by the appellant. The appellant's entire move was bonafide and with a view to revive and keep the Company floating, as the Company was engaging around 500 employee at the relevant point of time. The learned single Judge, therefore, ought to have appreciated this aspect.
21. Learned counsel for the appellant contended that the counsels appearing for the statutory authorities and other respondents did not take up any cogent objection or contention for non-suiting the appellant especially when the appellant did approach the Court and place on record the fact that pursuant to the advertisement the meetings were held with all the stake holders separately and the stake holders like creditors, secure creditors and others as well as shareholders did not object rather supported the scheme of compromise.
22. As against this, learned counsel appearing for the respondent no.2, the objector, submitted that the decision cited at the bar, which have been cited hereinabove, would clearly go to show that the appellant Company cannot be permitted to circumvent the ban imposed by SEBI nor can it Page 18 of 30 Downloaded on : Fri Feb 21 01:56:21 IST 2020 C/OJA/42/2015 CAV JUDGMENT be permitted to accord a special treatment to an investor. The counsel for the respondents elaborately submitted on the various aspects of ban of SEBI and SET against the Company called Nirma and its sister concern, wherein the present appellant's name is also figuring as a target Company. It was submitted that the Court's power for sanctioning of the scheme of amalgamation, arrangement or compromise needs to be guided by the fundamental underlying principles that the bonafide attempt to revival of the Company should only be supported and there should not be any support to any surreptitiously proceeding or attempt to scuttle the provision of law.
23. The learned single Judge has, in paragraph 9 of the judgment after referring to the indisputated facts of BIFR reference being pending when the petition was filed and the judgment of the Supreme Court in case of Tata Motors Ltd. (supra), held that the petition deserved to be dismissed on the ground that when the petition was filed the same was not maintainable. This Court is of the considered view that the ratio of the decision decidendi of Tata Motors Ltd. (supra) is not in dispute, so far as the proposition of BIFR right and jurisdiction to bring about any scheme or arrangement for keeping the Company afloat, but the development subsequent during the pendency of the petition and BIFR being not in seisin of the matter after the proposal was derigestered on 16.07.2014, would have lent some prop to the petitioner to make submission that after 16.07.2014 there was no moratorium and/or restrictions and/or even attempt, as the BIFR was not in any manner in seisin of the matter so as to prevent this Court from examining and appreciating the Page 19 of 30 Downloaded on : Fri Feb 21 01:56:21 IST 2020 C/OJA/42/2015 CAV JUDGMENT scheme of arrangements under the provision of Section 391 of the Company Act, 1956. The observations of the learned single Judge appears to have been proceeded only on the premise that the initiation of the petition itself was marred on account of the pendency of the reference proceedings before BIFR. The said reasoning rest there without taking into consideration and dealing with the subsequent aspect of the BIFR deregistering the proposal vide its order dated 16.07.2014. The counsel for the appellant is not wholly unjustified in contending that the initiation of the petition during the pendency of reference could not have been said to be a sole ground for rejecting the petition. At the most it could have been said that the Court would not have embarked upon issuing any direction in respect of approving the arrangement, compromise etc., as could be seen from the observation of the Supreme Court in cases of NGEF Limited and Tata Motors Ltd. (supra). At the same time the subsequent development and the time when the matter was being decided also required to be taken into consideration in appropriate prospective.
24. Learned single Judge has in paragraph 11 of the impugned judgment made observation in respect of the contents of the scheme and recorded conclusion that the passage of time and the dates mentioned thereunder could be held against the prayers in the petition for sanctioning the scheme. The learned counsel for the appellant was not wholly unjustified in contending that the learned single Judge ought not to have dismissed the petition on account of the dates mentioned under the scheme had gone by. In other words, it can well be said that it was open to the learned single Judge Page 20 of 30 Downloaded on : Fri Feb 21 01:56:21 IST 2020 C/OJA/42/2015 CAV JUDGMENT to modify the scheme suitably in case, if the scheme was otherwise found to be appropriate and deserving to be sanctioned.
25. The learned single Judge in paragraph nos.15, 16 and 17 elaborately and in detail adverted to the serious contention of the objectors, which in our view, needs to be appreciated in proper perspective. The observations of the learned single Judge in his own words deserve to be set out as under for ready reference:
"15. It is also clear from the record that SEBI has passed an order on 6.6.2008 which is produced by the objector at page 289 of the compilation. The said order was passed giving direction under Sections 11 and 11(B) of the SEBI Act read with Regulation 11 of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Security Market), Regulations of 2003 against the company and its directors. SEBI, by way of the said order, restrained the petitioner-company from accessing the securities market and prohibiting from buying, selling or dealing in securities directly or indirectly for a period of five years. It appears from the record that this aspect is also not stated by the petitioner- company in this petition nor it was pointed out before the respective shareholders and lenders that such proceedings are pending before the SEBI. Learned advocate Mr.Maulin Raval appearing for the objector submitted that if such facts were disclosed by the petitioner-Page 21 of 30 Downloaded on : Fri Feb 21 01:56:21 IST 2020 C/OJA/42/2015 CAV JUDGMENT
company in the respective meetings, perhaps the respective shareholders and lenders would not have voted in favour of the scheme.
16. From the record, it is further clear that SAT passed an order on 5.6.2008 in Appeal No.74 of 2007 filed by Nirma Industries Limited and Nirma Chemical Works Limited whereby the appeal filed by Nirma Industries was dismissed. The said order is produced at page 276 of the compilation. In the said order, Nirma Industries challenged the communication dated 30.4.2007 sent by SEBI to LKP shares and Securities Limited, Mumbai, Merchant bankers of Nirma informing it that request for withdrawal of the open offer made on behalf of it is not accepted. In paragraph 2 of the said order, SAT observed that Shree Rama Polysynth Pvt.Ltd., East-West Polyart Ltd. and Ideal Petroproducts Ltd. are group companies of Shree Rama MultiTech Limited (present petitioner) and these companies are stated to be target companies. In the said order, SAT observed in paragraphs 8 and 9 as under :
"8. xxxxx The above facts would seem to be enough to provide the appellants a correct prognosis regarding the financial health and prospects of the target company. Clearly, the appellants decided on invoking the pledge on the shares of the target company with open eyes and sufficient Page 22 of 30 Downloaded on : Fri Feb 21 01:56:21 IST 2020 C/OJA/42/2015 CAV JUDGMENT knowledge about the affairs of the target company. It is not as if the appellants were innocent and were caught napping in an unexpected turn of events. We are not, therefore, inclined to accept at its face value the argument of the appellants that they had no prior clue about the adverse financial information relating to the target company that were contained in the later reports of the Chartered Accountants. In this view of the matter, the Board was justified in characterising the situation that the appellants are faced with as the result of lack of due diligence and/or sheer business misfortune. They are only trying to wriggle out of a bad bargain which is not permissible under Regulation 27(1)(d) of the takeover code.
9.This brings us to the last contention advanced by the learned senior counsel on behalf of the appellants. It is contended that the Board did not afford any personal hearing to the appellants before taking the final decision on the request made on their behalf for the withdrawal from the public offer and, therefore, the principles of natural justice were flagrantly violated. Here again we are Page 23 of 30 Downloaded on : Fri Feb 21 01:56:21 IST 2020 C/OJA/42/2015 CAV JUDGMENT unable to agree with the learned senior counsel. There is no gainsaying the fact that the appellants themselves in their letter dated May 4, 2006 and subsequently their merchant banker in the communication dated September 22, 2006 had stated all the circumstances on which they were relying to seek withdrawal from the public offer and there was nothing more that they had to say. The Board considered all aspects of the matter and declined the request which has been discussed in detail hereinabove. We do not think that it was necessary for the Board to have afforded a personal hearing to the appellants in the circumstances of this case. Having acquired the shares of the target company which breached the threshold limit prescribed by the takeover code, the appellants were required to make a public offer to acquire further shares of that company for which a public announcement was made. The normal rule being that the public offer once made could not be withdrawn, it was only in the exceptional circumstances referred to in the earlier part of our order that such an offer could be withdrawn."
The aforesaid order passed by SAT was also Page 24 of 30 Downloaded on : Fri Feb 21 01:56:21 IST 2020 C/OJA/42/2015 CAV JUDGMENT challenged before the Hon'ble Supreme Court by Nirma Industries Limited and another. The Hon'ble Supreme Court has also dismissed the SLP filed by Nirma Industries Limited and others. The said decision is reported in AIR 2013 SC 2360.
17. Thus, from reading of the aforesaid orders passed by SAT as well as the Hon'ble Supreme Court, it is clear that though the petitioner-company was not a party to the said proceedings, however, the proceedings were initiated in pursuance to the transactions with the petitioner-company. Therefore, the petitioner-company and its group companies were described as target companies. Thus, from the record it is clear that the petitioner- company has not placed aforesaid important details with regard to pendency of proceedings before SAT in the respective meetings of the shareholders as well as lenders. That the "Investor" Nirma Industries and its sister concern made a public offer in view of takeover code (Substantial Acquisition of Shares and Takeover) Regulation, 1997 and said Nirma Industries had offered Rs.18.60 per share, Nirma thereafter applied for withdrawal of the said offer. SEBI had rejected the said application. Nirma Industries, therefore, preferred the appeal before the SAT. Thus, Mr.Raval, learned advocate for the objector is right in making the submission that if such facts would have been disclosed by the Page 25 of 30 Downloaded on : Fri Feb 21 01:56:21 IST 2020 C/OJA/42/2015 CAV JUDGMENT petitioner-company in the respective meetings, perhaps the respective shareholders and lenders would not have voted in favour of the scheme. The petitioner-company has also not disclosed the material fact with regard to the order dated 5.6.2008 passed by SAT in this petition also and, therefore, this petition is not required to be entertained on this ground also.
Section 391(1) and 391(2) provides as under:
"391. Power to compromise or make arrangements with creditors and members.
- (1) Where a compromise or
arrangement is proposed -
(a) between a company and its creditors
or any class of them;
or
(b) between a company and its members
or any class of them,
the [Tribunal] may, on the application of the company or of any creditor or member of the company or, in the case of a company which is being wound up, of the liquidator, order a meeting of the creditors or class of creditors, or of the members or class of members, as the case may be to be called, held and conducted in such manner as the Page 26 of 30 Downloaded on : Fri Feb 21 01:56:21 IST 2020 C/OJA/42/2015 CAV JUDGMENT [Tribunal] directs.
(2) If a majority in number representing three-fourths in value of the creditors, or class of creditors, or members, or class of members as the case may be, present and voting either in person or, where proxies are allowed [under the rules made under section 643], by proxy, at the meeting, agree to any compromise or arrangement, the compromise or arrangement shall, if sanctioned by the [Tribunal], be binding on all the creditors, all the creditors of the class, all the members, or all the members of the class, as the case may be, and also on the company, or, in the case of a company which is being wound up, on the liquidator and contributories of the company;
[Provided that no order sanctioning any compromise or arrangement shall be made by the [Tribunal] unless the [Tribunal] is satisfied that the company or any other person by whom an application has been made under sub-
section (1) has disclosed to the [Tribunal], 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 Page 27 of 30 Downloaded on : Fri Feb 21 01:56:21 IST 2020 C/OJA/42/2015 CAV JUDGMENT pendency of any investigation proceedings in relation to the company under sections 235 to 351, and the like.]"
Proviso of Section 391(2) specifically provides that order of sanctioning any compromise or arrangement shall not be passed by the Court unless it is specified that the company or any other person by whom an application has been made has disclosed to the Court by affidavit or otherwise, all material facts relating to the company. Here the word "material facts relating to the company" is very important. In the proviso itself, it is further stated that all material facts such as the latest financial position of the company, latest report on the accounts of the company, the pendency of any investigation proceedings in relation to the company under Section 235 to 351 and the like. I am of the opinion that the petitioner- company is required to disclose all material facts provided under the proviso and similar to such facts. Even if the investigation proceedings is not pending in relation to the company under Section 235 to 351 of the Companies Act, if any other investigation/proceedings are pending against the company, the company is required to disclose the same before the respective shareholders and lenders as well as before the Court."Page 28 of 30 Downloaded on : Fri Feb 21 01:56:21 IST 2020 C/OJA/42/2015 CAV JUDGMENT
26. The said observations, in our view, are findings of the facts and those findings have remain to be shown to be incorrect or contrary to the facts on record. In view of those findings, if the prayers of the petition are examined, then one will have no other option but to come to the conclusion that the scheme, as it stood in the backdrop those factual narration of the SEBI and SAT's prohibitory orders, would surely militate against granting of the prayers.
27. The Court is also of the view that the passage of time i.e. when the scheme was floated or sought to be implemented after approval of the Court was that of year 2008. The requisite meeting of the concerned stake holders were held within that year or around that time and when the petition was taken up for hearing and judgment was rendered in the year 2015, the said consent or lack of objection of the stake holder could not have been acted upon by the Court and therefore from that angle also one has to accept that the learned single Judge did not erred in not granting the prayers. The Court hasten to add here that the filing of earlier petitions on a different factual aspect may perhaps not act as res judicata so far as the petition was concerned, but the peculiar facts of the present case and the passage of time from the date of filing of the scheme holding the meetings separately with the stakeholders and final orders which were required to be passed in the year 2015 itself was sufficient ground for rejecting the prayers, else it would have amounted to acting upon the consent or lack of objection or from that matter approval by the stakeholders before seven to eight years, which would be justified in the case. The ratio decidendi of the decision cannot be disputed in any manner Page 29 of 30 Downloaded on : Fri Feb 21 01:56:21 IST 2020 C/OJA/42/2015 CAV JUDGMENT and need not be disputed but the facts of the present case and the time lag between the floating of the scheme, consulting the stakeholders by way of meeting and final consideration of the prayer could not have been overlooked by the single Judge and therefore, the judgment and order impugned in this O.J. Appeal, in our view, could not be said to be suffering from any infirmity so as to call for any interference.
28. The Court is of the view that the present findings recorded in this judgment and the judgment of the learned single Judge may not be treated as impediment in the way of the petitioner in seeking fresh mandate from the stakeholders for floating appropriate scheme hereafter and in such eventuality it goes without saying that the same would be brought to its logical conclusion in accordance with law.
29. With these observations, the appeal is dismissed.
30. In view of the above, the F/COMA No.1805 of 2017 stands disposed of.
(S.R.BRAHMBHATT, J.) (A.G.URAIZEE, J.) Pankaj Page 30 of 30 Downloaded on : Fri Feb 21 01:56:21 IST 2020