Karnataka High Court
Electronics And Controls vs Wep Peripherals Ltd on 21 October, 2013
Author: N.Kumar
Bench: N.Kumar
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IN THE HIGH COURT OF KARNATAKA AT BANGALORE
DATED THIS THE 21st DAY OF OCTOBER 2013
PRESENT
THE HON'BLE MR.JUSTICE N.KUMAR
AND
THE HON'BLE MR.JUSTICE H.BILLAPPA
O.S.A.No.7/2013
in COP.No.98/2012 c/w. COP.No.99/2012
BETWEEN:
Electronics & Controls Power Systems Pvt. Ltd.
A company incorporated under
The Companies Act, 1956
And having its registered office at
No.29/A, II Phase,
Peenya Industrial Area,
Bangalore - 560 058.
Represented by its
Managing Director
Sri.R.Rajaram. ...Appellant
(By Sri.S.S.Naganand, Sr. Counsel for Sri.S.Sriranga, Adv.,)
AND:
1. WeP Peripherals Ltd.
A company incorporated under
The Companies Act, 1956
And having its registered office at
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No.40/1 A, Bassappa Complex,
Lavelle Road,
Bangalore - 560 001.
Represented by its Managing Director
Sri.Ram Agarwal.
2. WeP Solutions Ltd.,
A company incorporated under
The Companies Act, 1956
And having its registered office at
No.40/1 A, Bassappa Complex,
Lavelle Road,
Bangalore - 560 001.
Represented by its Co. Secretary
Sri.S.Kannan. ...Respondents
(By Sri.Uday Holla, Sr. Counsel for Sri.Saji.P.John, Adv., for
R1 & 2)
******
This OSA is filed under Section 391(7) of the
Companies Act, 1956, r/w. Section 4 of the Karnataka High
Court Act, 1961, praying that for the reasons stated therein
this Hon'ble Court may be pleased to set aside the common
order dated 20.11.2012 passed in Co.P.No.98/2012 and
Co.P.No.99/2012 sanctioning the Scheme of Arrangement
and consequently dismiss the said Company Petition
No.98/2012 r/w. Company Application No.518/2012.
This OSA coming on for orders this day, N.Kumar J.,
delivered the following:
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JUDGMENT
This appeal is preferred against the common order passed in Company Petition Nos.98/2012 and 99/2012 sanctioning a scheme of arrangement approved by the Board of Directors of the transferor and transferee companies.
2. For the purpose of convenience, the parties are referred to as they are referred to in the original proceedings.
3. Company Petition No.98/2012 is filed by the WeP Peripherals Limited (hereinafter called a 'transferor Company'). The transferor Company was incorporated on 5.7.2006 under the Companies Act, 1956 with the Registrar of Companies, Karnataka, under the name and style of 'ePS Infotech Limited'. Later the name was changed to 'Wipro ePeripherals Limited' with effect from 19.7.2000. Subsequently, the name was again changed to the present -4- name, i.e., "WeP Peripherals Limited". The main object of the transferor Company was to design, invent, develop, manufacture, assemble, update, market, trade etc., to advertise and deal in all computers, computer peripherals, all kinds of typewriters, information technology peripherals etc., and other activities as set out in the Memorandum of Association. The authorised share capital of the transferor Company was `.27 crores equity shares of `.10/- each. Issued, subscribed and paid up capital was `.1,95,69,940/-
4. The petitioner in Company Petition No.99/2012 is WeP Solutions Limited (hereinafter referred to as 'transferee company'). It was incorporated on 1.3.1995 under the provisions of Companies Act, 1956 under the name and style as 'Datanet Corporation Limited' in the State of Delhi. The transferee company has shifted its registered office from the State of Delhi to the State of Karnataka with effect from 10.5.1999. The name of the -5- transferee company was changed to 'Datanet Systems Limited' with effect from 3.3.2000. Subsequently the name was changed into the present name 'WeP Solutions Limited' with effect from 23.12.2011. The transferee company was incorporated to carry on communication, office automation systems etc., amongst others. The share capital of the transferee company as on 31.12.2011 is `.30 crores equity shares of `.10 each issued and subscribed share value is `.11,26,26,740 and the paid up capital is `.11,26,20,905.
5. The transferor and transferee company entered into a scheme of arrangement under which they agreed for de-merger of the printer business of the transferor Company into the transferee company and issue of fresh equity shares to the share holders of transferor Company in lieu of cash for demerger of printer business into transferee company. The Board of Directors of the transferor company also approved and adopted the scheme of arrangement on 17.12.2011. Thereafter the transferor -6- Company filed a petition before this court in Company Application No.518/12 in which the Company Court has passed the order on 3.4.2012 directing the transferor Company to convene the meeting of the secured creditors, share holders and unsecured creditors of the transferor Company on 17.5.2012 at 12 p.m, 12.30 p.m and 1.00 p.m respectively at 3rd Floor, 40/1A, Basappa Complex, Lavelle Road, Bangalore 560 001 and Sri.Ram.N.Agarwal, Chairman of the transferor Company was appointed as Chairman of the meetings. The meeting notice was sent to the share holders, secured and unsecured creditors of the transferor Company and the notice of the meetings was duly published in 'The Hindu' and 'Vijaya Karnataka' both dated 18.4.2012. Thereafter in the meeting on 17.5.2012 the scheme was approved with the majority as required under law. The secured creditors meeting was attended by 4 secured creditors. All of them voted in support of the scheme. -7-
6. Similarly the transferee company also filed a Company Application No.519/12 wherein also a similar order came to be passed. Similar meetings were convened and in the said meetings the scheme of arrangement was approved with requisite majority. Thereafter the transferor Company and the transferee company filed the Company Petition Nos.98 and 99 of 2012 under section 391 and 394 of the Companies Act, 1956 (hereinafter referred to as 'Act') requesting the court to sanction the scheme of arrangement. In the said petition the Company Court ordered for publication of the notice of the hearing of the said company. It is in pursuance to the said notice duly published, the appellant herein i.e. Electronics & Controls Power Systems Private Limited filed an affidavit opposing the approval of the scheme.
7. In the affidavit, the appellant contends it is one of the creditors of the transferor Company. It has live claims to an extent of `50 Crores. A demand for `50 Crores -8- was made under a notice dated 1.10.2009. They have also made a request for appointment of Arbitrator vide notice dated 24.3.2011. The transferor Company did not accede to the request for referring the matter for arbitration. Therefore, the appellant was constrained to file Civil Misc. Petition No.15/2012 in the Hon'ble High Court. Emergent notice has been issued by order dated 10.4.2012. In the succeeding paras of the affidavit, the appellant has set out in details its claim. Thereafter, it contends that the transferor Company had suppressed the factual position in its annual report as well as in the scheme of arrangement and had conducted the meetings without any notice whatsoever to the appellant. The balance-sheet of the transferor Company is erroneous inasmuch as it had not reduced the amount of `423.20 Lakhs in the loans and advances inspite of appellant's notice to that extent inasmuch as the appellant had adjusted the said amount. The transferor Company had deliberately omitted to include -9- the name of the appellant as its creditor and therefore, they have sought for dismissal of the Company Petition.
8. The learned Company Judge, after taking note of the pleadings of the parties and the documents on which they relied on, by his order dated 20.11.2012 held that the interest of the appellant against the transferor Company has been safeguarded in pursuance of clause 8 of the scheme. In the light of the scheme of arrangement and its approval by the Board of Directors of the transferor and transferee companies and the consent given by the secured and unsecured creditors and also on the basis of the report made by the Regional Director, the Company Judge was of the view that a case for accepting the prayer for sanctioning of the scheme of demerger is made out. Accordingly, both the petitions were allowed. It is against the said order, the present appeal is filed.
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9. Sri.S.Naganand, learned Senior Counsel appearing for the appellant, assailing the impugned order passed by the learned Company Judge contended that in terms of section 391 of the Act, no notice of the meeting of the creditor was given to the appellant. The total value of credit was hardly `.5 Crores whereas the claim of the appellant was `.50 Crores and therefore, the consent of the creditors totaling to `.5 Crores was not sufficient to the approval of the scheme by the creditors. Unless the statutory requirement is complied with, the Company Court gets no jurisdiction to pass an order approving the scheme. The transferee company has suppressed the claims and the litigations pending between the parties in the claim petition. On the contrary, they have specifically stated that there are no litigations or claims pending against the Company. Therefore, the transferor Company has not come to the Court with clean hands. On these grounds, the petition ought to have been dismissed. The learned Company
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Judge has not adverted to any of these aspects of the matter and has rejected the objection on the ground that the interest of the appellant is taken care of by virtue of clause 8 of the scheme of arrangement. Therefore, he submitted that the impugned order is patently illegal and requires to be set-aside.
10. Per contra, Sri.Udaya Holla, learned Senior Counsel appearing for the respondents contended that the transferor Company is not due in any amount to the appellant. On the contrary, as it is clear from the balance- sheet of the appellant itself that a sum of `.4,23,20,000/- is due from the appellant to the transferor Company. The transferor Company has already instituted a company petition for winding up of the appellant Company. The application filed by the appellant for appointment of Arbitrator is dismissed. The application filed by the appellant for interim arrangement under section 9 of the Arbitration and Conciliation Act 1996 is also dismissed.
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Therefore, he submits that a mere claim for unliquidated damages would not give him the status of a creditor under section 391 of the Act and consequently, there was no obligation cast on the transferor to take out notice to him nor to mention about imaginary claim in the petition. Even otherwise, clause 8 of the scheme of arrangement protects the interest of the appellant as rightly held by the learned Company Judge and therefore, he submitted that seen from any angle, the impugned order do not suffer from any legal infirmity which calls for interference.
11. From the material on record, it is clear, the transferor Company entered into an agreement with the appellant on 29.9.2006 which is styled as Business Participation Agreement. Under the agreement, the transferor has to pay `.5 Crores to the appellant, in turn the appellant has to extend its know how to the transferor Company. Under the terms of the agreement, first installment of `.2 Crores was paid by the transferor to the
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appellant and the balance amount of `.3 Crores was liable to be paid within 60 days from the date of the agreement. However, the said agreement could not be worked out. Therefore, both the parties entered into a Memorandum of Understanding dated 28.12.2007 where under they have agreed that as the agreement dated 29.9.2006 was not operationalized, they are entering into a new agreement. They have set out terms and conditions and then in the end at clause 22 of the MOU it is stated, upon execution of this MOU, all preceding Agreements/MOU's including the one signed in September 2006 stands cancelled. The effect is, the agreement dated 29.9.2006 stood cancelled. Thereafter, on 1.10.2009, the appellant issued a notice to the transferor claiming a sum of `.50 Crores as damages in breach of the terms of the agreement dated 29.9.2006. It is stated, the said notice was sent by "Under Certificate of Posting", the receipt of which the transferor denies. Thereafter, the appellant filed an application under section
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9 of the Arbitration and Conciliation Act, 1996 before the VI Addl. City Civil Judge, Bangalore City, in A.A.No.239/2010 seeking for interim order. The said application was contested by the transferor. The learned Judge, after considering the rival contentions at length, was of the view that the application filed under section 9 of the Arbitration and Conciliation Act is not maintainable in law and accordingly, dismissed the same by order dated 30.3.2010. The exparte order of temporary injunction dated 19.2.2010 granted earlier was vacated. The appellant has preferred an appeal against the said order in MFA.No.6165/2012, roughly two years after the said order and according to the learned counsel for the respondents, they are yet to be served notice in the said proceedings. The appellant also filed a petition under section 11(5) and 11(6) of the Arbitration and Conciliation Act, 1996 before this Court in CMP.No.15/2012 for appointment of Justice R.G.Vaidyanatha (Retd.) or any other appropriate Arbitral
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Tribunal comprising of sole arbitrator to adjudicate upon the disputes that have arisen between the appellant and the transferor under the agreement dated 29.9.2006. The said application was also contested. The learned Judge of this Court was of the view that the agreement dated 29.9.2006 stands cancelled in view of clause 22 of the MOU. Therefore, the arbitration clause contained in the rescinded contracts cannot be pressed into service by the appellant. The parties are governed by the substituted contract i.e., MOU dated 28.12.2007 and the same does not contain the arbitration agreement and therefore, the application filed for appointment of arbitrator was liable to be dismissed. Accordingly, by order dated 20.11.2012, the learned Single Judge dismissed the said petition. It is submitted against the said order of the learned Single Judge the appellant has approached the Supreme Court in SLP.No.36968/2012 and the matter is part-heard and pending consideration before the Hon'ble Apex Court. These facts are not in dispute.
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12. Explaining the legal position and the power of the Company court under section 391 of the Act, the Hon'ble Apex Court in the case of Miheer H.Mafatlal v. Mafatlal Industries Ltd., reported in AIR 1997 SC page 506 has held as under;
"28. ..............On a conjoint reading of the relevant provisions of Sections 391 and 393 it becomes at once clear that the Company Court which is called upon to sanction such a scheme has not merely to go by the ipse dixit of the majority of the shareholders or creditors or their respective classes who might have voted in favour of the scheme by requisite majority but the Court has to consider the pros and cons of the scheme with a view to finding out whether the scheme is fair, just and reasonable and is not contrary to any provisions of law and it does not violate any public policy. This is implicit in the very concept of compromise or arrangement which is required to receive the imprimatur of a Court of law. No Court of law would ever countenance any scheme of compromise or
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arrangement arrived at between the parties and which might be supported by the requisite majority if the Court finds that it is an unconscionable or an illegal scheme or is otherwise unfair or unjust to the class of shareholders or creditors for whom it is meant. Consequently it cannot be said that a Company Court before whom an application is moved for sanctioning such a scheme which might have got the requisite majority support of the creditors or members or any class of them for whom the scheme is mooted by the concerned company, has to act merely by the concerned company, has to act merely as a rubber stamp and must almost automatically put its seal of approval on such a scheme. It is trite to say that once the scheme gets sanctioned by the Court it would bind even the dissenting minority shareholders or creditors. Therefore, the fairness of the scheme qua them also has to be kept in view by the Company Court while putting its seal of approval on the concerned scheme placed for its sanction. It is, of course, true that so far as the Company Court is concerned as per the statutory
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provisions of Sections 391 and 393 of the Act the question of voidability of the scheme will have to be judged subject to the rider that a scheme sanctioned by majority will remain binding to a dissenting minority of creditors or members, as the case may be, even though they have not consented to such a scheme and to that extent absence of their consent will have no effect on the scheme. It can be postulated that even in case of such a Scheme of Compromise and Arrangement put up for sanction of a Company Court it will have to be seen whether the proposed scheme is lawful and just and fair to the whole class of creditors or members including the dissenting minority to whom it is offered for approval and which has been approved by such class of persons with requisite majority vote.
28-A............ In view of the aforesaid settled legal position, therefore, the scope and ambit of the jurisdiction of the Company Court has clearly got earmarked. The following broad contours of such jurisdiction have emerged:
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1. The sanctioning Court has to see it that all the requisite statutory procedure for supporting such a scheme has been complied with and that the requisite meetings as contemplated by Section 391(1) (a) 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 Section 391, sub-section (2).
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 Section 393 (1) (a) is placed before the voters at the concerned meetings as contemplated by Section 391, sub-section (1).
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5. That all the requisite material contemplated by the proviso to sub-section (2) of Section 391 of the Act 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 policy. For ascertaining the real purpose underlying 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 in good faith and were not coercing the minority in order to promote any coercing the minority in order to promote any interest adverse to that of
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the latter compromising 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.
9. Once the aforesaid parameters about the requirement of a scheme for getting sanction of the Court are found to have been met, the Court will have no further jurisdiction to sit in appeal over the commercial wisdom of the majority of the class of persons who with their open eye have given their approval to the scheme even if in the view of the Court there would be a better scheme for the company and its members or creditors for whom the scheme is framed. The Court cannot refuse to sanction such a scheme on that ground as it would otherwise amount to the Court exercising appellate jurisdiction over the scheme rather than its supervisory jurisdiction.
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The aforesaid parameters of the scope and ambit of the jurisdiction of the Company Court which is called upon to sanction a Scheme of Compromise and Arrangement are not exhaustive but only broadly illustrative of the contours of the Court's jurisdiction."
13. Subsequently, the Hon'ble Apex Court in the case of Sesa Industries Ltd. v. Krishna.H.Bajaj and others reported in (2011) 3 SCC page 218, following the aforesaid judgment held as under:
"34. It is plain from the aforeextracted provisions that when a scheme of amalgamation/merger of a company is placed before the Court for its sanction, in the first instance the court has to direct holding of meetings in the manner stipulated in Section 391 of the Act. Thereafter, before sanctioning such a scheme, even though approved by a majority of the members or creditors concerned, the court has to be satisfied that the company or any other person moving such an application for
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sanction under sub-section (2) of Section 391 has disclosed all the relevant matters mentioned in the proviso to the said sub-section.
38. It is manifest that before according its sanction to a scheme of amalgamation, the Court has to see that the provisions of the Act have been duly complied with; the statutory majority has been acting bone fide and in good faith and are not coercing the minority in order to promote any interest adverse to that of the latter compromising the same class whom they purport to represent and the scheme as a whole is just, fair and reasonable from the point of view of a prudent and reasonable businessman taking a commercial decision."
14. The Company Court on a petition presented to it for approval of the compromise arrangement with the creditors and members ordered 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 a manner as the Court directs. If the majority in
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number representing 3/4th 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, by proxies at the meeting, agree to any compromise or arrangement, the compromise or arrangement may be sanctioned. Once sanctioned, it shall be binding on all the creditors or class of creditors or members or class of members as the case may be and also on the company or in case, a company which is being wound up, on the liquidators and contributories of the Company. Therefore, before an order sanctioning the arrangement is passed by the Court, notice has to be issued to the creditors and 3/4th in value of the creditors should agree to such an arrangement, then only the Company Court gets the jurisdiction to order sanctioning of such scheme. Section 390 of the Act aids in interpreting sections 391 and 393 and 390(c) which provides that unsecured creditors who may have filed suits or obtained decrees shall
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be deemed to be of the same class as other unsecured creditors. In other words, it defines who are the persons who could be classified as unsecured creditors. Even persons who have filed suits or obtained decrees ought to be treated as unsecured creditors. By virtue of the deemed provision, though they cannot be construed as unsecured creditors, they are deemed as unsecured creditors. Relying on this provision, the learned Senior Counsel contended that in the instant case, the appellant satisfies the said criteria prescribed for a creditor. In support of his contention, he relied on several judgments.
15. In the case of Seksaria Cotton Mills Ltd. v. A.E.Naik and Others reported in (1967)37 Company Cases 656(Bom) on which reliance was placed, the Bombay High Court interpreting section 391 of the Act, has held as under:
"The word 'creditor' in section 391 of the Companies Act, 1956, is used in the widest sense so as to include all persons having
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pecuniary claims against a company. It is not necessary that a person in order that he may be a 'creditor' should have an ascertained amount payable by the company. He will be a 'creditor' even if he has against the company a claim, present or future, certain or contingent, ascertained or sounding only in damages.
16. Reliance is also placed on yet another judgment of the Bombay High Court in the case of STATE OF TAMIL NADU v. UMA INVESTMENTS PVT. LTD., reported in 1977 (47) Company Cases page 242 (Bom). Again interpreting section 391, it was held that, "A creditor would be a person having a pecuniary claim against the Company, whether actual or contingent. It is in respect of these classes of creditors that a proposal is put forward by the company for a compromise or arrangement. The compromises or arrangements are, therefore, concerned with civil liabilities where a creditor will accept a lesser payment or receive less on distribution or grant time or waive interest and work out other kindered
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things. It is not possible to take the view that section 391 is meant for freezing criminal proceedings which may be instituted either by a creditor or a member of a company or by the State either against the company or its officers."
17. He also relied upon the judgment of Chancery Division in the case of In re T & N Ltd and others reported in (2005) EWHC page 2870 (CH), where after reviewing the entire English case law on the subject, at para 46, it has been held as under:
"The present state of the authorities
therefore shows that (i) the holder of a
contingent claim is a creditor for the purposes of the provisions governing both schemes of arrangement and CVAs and (ii) the claim need not be a provable debt. The nature of contingent claims is such that a creditor for these purposes need not have an accrued cause of action. To take the simple example of an uncalled guarantee, the person with the benefit of the guarantee will be a 'creditor' of the guarantor, even though there has not been, and
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may never be, any default on the principal debt or any call on the guarantee."
18. He also relied upon the judgment of the Singapore High Court in the case of Pacrim Investments Pte Ltd v. Tan Mui Keow Claire and another reported in (2010) SGHC page 368 where in the absence of a definition of term "creditor", the High Court held as under:
"4. The term 'creditor' is not defined. The issue is whether Pacrim, whose status at the time the Scheme came into force was that of a party that had a claim in damages against MSL that was dismissed by the High Court but whose appeal was pending, falls within that term. There is no binding authority on this point. The AR had, in his GD, traversed the relevant authorities and concluded that the term 'creditor' in s 210 of the Act should be given a wide meaning. It is not necessary for me to similarly traverse those authorities because counsel for Pacrim, Ms Lisa Chong ('Ms Chong'), conceded that judicial attitudes in jurisdictions from which the Act was derived had moved towards a broad
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approach. Indeed, paras 4.11-4.13 of Ms.Chong's written submission on the issue helpfully set out the positions taken in relevant decisions in various Australian jurisdictions.
4.11 The above extract shows (the) development of the legal definition of 'creditor' in the Australian Courts in the following chronological order:-
a. In Re Midland Coal, Coke and Iron Company (1895) 1 Ch 267('Re Midland Coal'), the Court adopted the broad approach that 'creditors' is used in the widest sense and 'includes all persons having any pecuniary claims against the company';
b. In Trocko v Renlita Products Property Ltd (1973) 5 S.A.S.R. 207 ('Re Trocko'), the Court held that 'creditors' do not include persons with unliquidated claims sounding only in damages because of the absence of any machinery to ascertain the amount of such claim;
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c. In Re Glendale Land Development Ltd (No.2) (1982) 1 ACLC 562 ('Re Glendale'), McLelland J held that 'creditors' should be understood as embracing all persons with claims which would be entitled to be admitted to proof if the company were wound up;
d. In Re R.L.Child & Co Property Ltd (1986) 4 ACLC 312 ('Re Child'), McLelland J reiterated his view that 'creditors' should be understood as embracing all persons with claims which would be entitled to be admitted to proof if the company were wound up save.....persons having unliquidated claims in tort which (are) excluded as a creditor in winding up of a company which is insolvent...
5. At the time the Scheme was established, Pacrim had its claim dismissed by the High Court but its appeal was pending. This meant that in the vent its appeal was allowed, it would be a creditor; indeed this was an eventuality that did materialize. There was no basis on principle to exclude persons in Pacrim's position from the scope of 'creditors', In
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practice, doing so would unfairly benefit such companies who would be able to recoup its entire debt from a company resuscitated from the sacrifices of all the other creditors."
19. Per contra, learned counsel appearing for the transferor Company relied on a judgment of this Court in the case of Vikrant Tyres vs. Nil* reported in ILR 2003 KAR page 3885, at para 20, wherein it is held as under:
"It is also possible that a particular debt is not admitted by petitioner company or the creditors name is not found in the books of accounts or the creditor's claim is disputed and it is subject matter of pending proceedings. In such circumstances, the basic question is whether the person complaining of want of notice, is he a creditor in the strict sense though no hard and fast rules can be laid sown in this regard. These questions have to be answered having regard to the facts and circumstances of the case and the intention and object behind the statutory provisions and conduct of parties. If a
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debt is disputed and it is the subject matter of litigation and if total value of such debt makes no significant difference to the total amount of debt due by the company and if a substantial or over whelming majority of creditors approve a scheme non-issue of notice to such a creditor would not effect the meeting held or resolutions approved in such meeting. In this background, it is necessary to know what is the right of the creditor even if such a notice has been issued and if he had appeared in such a meeting. In the case of MAHALAXMI COTTON MILLS LTD. which arise under the Companies Act of 1913 it has been held that for the purposes of an application for sanctioning a scheme of arrangement under Section 153, the creditors whose names appear in the books of the company should be considered as creditors and their votes should be taken into account. Creditors whose names do not appear in the books have to show to the satisfaction of the Court that they are creditors."
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20. Further reliance is also placed on the judgment of the Calcutta High Court in the case of In re Mahaluxmi Cotton Mills, Ltd. v. Nil. reported in AIR (37) 1950 Calcutta page 399, wherein at para 11 it is held as under:
"11. I am of opinion that for the purpose of this application, the creditors whose names appear in the books of the company should be considered as creditors and their votes would be taken into account. The creditors whose names do not appear in the books of the company should not be considered as creditors unless they can show prima facie on this application to the satisfaction of the Court that they are creditors."
21. He also relied on section 439 of the Act that where there is a specific reference to a contingent or prospective creditor or creditors who are also entitled to maintain a petition, for winding up of a Company and contended that such provision is conspicuously missing in section 391.
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22. From the aforesaid provisions, it is clear that the word "creditor" is not defined under the Act. For the purpose of section 391, an attempt is made to widen the meaning of the word "creditor". Having regard to the express words used in section 391 that a meeting of the creditors or class of creditors, it is clear the word "creditor" includes secured creditors and unsecured creditors. Unsecured creditors form a class by themselves. Clause (c) of section 390 provides that unsecured creditors includes the persons who have filed suits or obtained decrees. In other words, in the first case, it is a mere claim in a suit. In the second set of cases, the claim has matured into a decree which may be subjected to further appeals and the judgment-debtor may not admit the claim, but for the purpose of section 391, all of them are treated as creditors and notice of the petition under section 391 has to be sent to such creditors and only when the creditors or unsecured creditors representing 3/4th in value agree for the
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compromise or arrangement, the Company Court gets the jurisdiction to sanction the scheme. However, as held in the aforesaid judgment of the Calcutta High Court, for the purpose of application under section 391, the creditors whose names appear in the books of the Company should be considered as creditors and their votes would be taken into account. When the transferor Company do not accept the claim against them and it is not reflected in their balance sheet or in their account books, they cannot be found fault with for not including their names in the accounts nor for taking out notice to them in a petition under section 391. In such cases, if the creditor whose name does not appear in the books of the Company appears before the Court and contends that he is a creditor, before he could be considered as a creditor prima facie he should satisfy the Court that he has a genuine claim and he falls within the definition of the word "creditor". As held by this Court in the case of Vikrant Tyres Limited, no hard and
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fast rules can be laid down in this regard. If on such a claim being put forth, if the Court is satisfied that though the claimant's name does not appear in the books of account, but prima facie he makes out a claim, the Court has power to dismiss the petition filed for sanction on the ground that if a creditor representing substantial value has not been given an opportunity to have a say in the scheme, it is liable to be rejected. Even if that claim is taken into account, if 3/4th of the value of the total creditors have agreed for the compromise or scheme, it would not vitiate approval given by such creditors. Therefore, in a given case, the Company Court has to look into the facts of the case and pass appropriate orders.
23. It is in this background when we examine the facts of the case, it is clear that the appellant entered into an agreement with the transferor Company on 29.9.2006 under which the transferor Company was expected to pay `.5 Crores as against which only `.2 Crores was paid.
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Correspondingly, the appellant has to perform certain obligations under the contract, as is clear from the MOU entered on 28.12.2007, the agreement of 29.9.2006 was not operational. Therefore, under the terms and conditions mentioned therein, they cancelled the agreement dated 29.9.2006. It is on record. Taking into account that `.2 Crores is paid on 29.9.2006 and additional amounts were paid, in all, a sum of `.4,23,20,000/- was paid by the transferor to the appellant. The appellant's grievance is that the transferor has committed breach of the terms of the agreement and therefore, on account of such breach, they have sustained loss and therefore, the transferor is liable to pay damages in a sum of `.50 Crores. Demand was made to this effect on 1.5.2009. It is in the nature of unliquidated damages. The appellant has not filed any suit for recovery of the said amount in a competent Civil Court. He called upon the transferor to agree for the appointment of an Arbitrator which the transferor declined. Therefore,
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the appellant initiated proceedings under section 9 of the Arbitration and Conciliation Act, 1996 for an interim order pending adjudication of the claim in A.A.No.239/2010 which came to be dismissed as not maintainable by order dated 30.3.2010. The said order is challenged in appeal before this Court in MFA.No.6165/2012. The said proceedings cannot be construed as legal proceedings initiated for recovery of the aforesaid amount. When the transferor did not agree for appointment of Arbitrator, the appellant initiated proceedings under section 11 of the Arbitration and Conciliation Act, 1996 for appointment of Arbitrator before this Court in CMP.No.15/2012. The said petition is also dismissed holding that the agreement on which reliance is placed where the arbitration clause is contained stands cancelled by order dated 20.11.2012. Now the matter is pending before the Hon'ble Apex Court in SCC.No.36968/2012. Initiation of proceedings under section 11 of the Act also cannot be construed as a
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proceeding for recovery of the aforesaid amount. What remains is, there is claim for `.50 Crores made in the letter dated 1.10.2009. Now the material on record shows that the said claim is based on agreement dated 29.9.2006. MOU dated 28.12.2007 expressly states that the said agreement is cancelled. The audited balance sheet of the appellant clearly show, the transferor has paid a sum of `.4,23,20,000/- to the appellant, which is not in dispute. A claim for `.50 Crores is put forth on the basis of an agreement which is not given effect to, and cancelled. In the facts of this case, it is difficult to accept the contention of the appellant, that the claim of `.50 Crores made in the letter dated 1.10.2009 is sufficient to give them the status of a creditor within the definition of word "creditor". Secondly when litigations were pending between them, especially when the transferor has initiated proceedings for winding up of the company of the appellant in Company Petition No.168/2010 and also a suit for recovery of money
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in O.S.No.8994/2011, such a debtor should have been heard by giving notice before sanctioning of the scheme. It would be a travesty of justice to hold that a person who is a debtor would par takes the character of creditor by mere issue of a demand notice. As rightly held by the learned Company Judge and also canvassed before us by the learned counsel for the transferor Company, by virtue of clause 8 of the scheme of arrangement, in the event the appellant were to establish any claim, as made out in the letter dated 1.10.2009 even against the transferor, the transferee would be liable to answer the said claim. That is where the learned Company Judge says that the appellant's interest is properly taken care of. Though the learned Company Judge has not considered all the contentions urged by the appellant herein, and recorded any findings thereon, but he has come to the right conclusion. In the circumstances, we are of the view that the order passed by the learned Company Judge calls for no interference.
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(a) Accordingly, the appeal is dismissed.
(b) All the pending applications are dismissed.
(c) It is made clear, between the parties several litigations are pending before different forums. All these forums while deciding the respective litigations shall do so without in any way being influenced by any of the observations made by this Court in this Order.
(d) No costs.
Sd/-
JUDGE.
Sd/-
JUDGE.
Dvr.Bss.