Gujarat High Court
Shree Rama Multi Tech Limited vs Respondent(S) on 15 July, 2015
Author: Vipul M. Pancholi
Bench: Vipul M. Pancholi
O/COMP/247/2008 CAV JUDGMENT
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
COMPANY PETITION NO. 247 of 2008
In COMPANY APPLICATION NO. 401 of 2008
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR.JUSTICE VIPUL M. PANCHOLI
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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 ?
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SHREE RAMA MULTI TECH LIMITED....Petitioner(s)
Versus
.....Respondent(s)
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Appearance:
MR S.N.SOPARKAR, SENIOR COUNSEL WITH MRS SWATI SOPARKAR,
ADVOCATE for the Petitioner(s) No. 1
MR MAULIN RAVAL, ADVOCATE FOR M/S RJ RAWAL ASSOC., ADVOCATE
for the Respondent(s) No. 1
MR KSHITIJ AMIN, ADVOCATE FOR LEARNED ASG MR DEVANG VYAS,
ADVOCATE for the Respondent(s) No. 1
MR M.IQBAL A SHAIKH, ADVOCATE for the Respondent(s) No. 1
MS SHIVYA A DESAI, ADVOCATE for the Respondent(s) No. 1
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Page 1 of 58
O/COMP/247/2008 CAV JUDGMENT
CORAM: HONOURABLE MR.JUSTICE VIPUL M. PANCHOLI
Date : 15/07/2015
CAV JUDGMENT
1. This petition is filed by the petitioner- company for the following reliefs:
"26(a) The Composite Scheme of Compromise and Arrangement referred to in para-9 of this petition and being Annexure-"C" (being a corrected copy) hereto, is sanctioned by this Hon'ble Court so as to be binding on all the Equity Shareholders, Preference Shareholders, Class `A' Lenders and Class `B' Lenders of the Petitioner Company and on the Petitioner Company.
(b) For such incidental, consequential and supplemental orders and directions may be given as may be made in the premises as to this Hon'ble Court may deem fit and proper."
2. Factual matrix of the case are as under:
2.1. That the petitioner company was incorporated on 17.12.1993 as public limited company in the office of Registrar of Companies under the provisions of the Companies Act. The petitioner company was incorporated for the Page 2 of 58 O/COMP/247/2008 CAV JUDGMENT objects which are set out in the Memorandum and Articles of Association of the company. In paragraph 5 of the petition, the main objects of the company are stated. As per the audited balance sheet as on 31.3.2008, the authorized, issued, subscribed and paid up share capital of the petitioner-company consists of the following:
SHARE CAPITAL AS ON 31/03/2008 Authorised: (Rupees In Lacs) 20,00,00,000 Equity 10000.00 Shares of Rs.5/- each 50,00,000 Preference 5000.00 Shares of Rs.100/- each 15000.00 Issued and Subscribed 6,35,55,555 Equity 3177.78 Shares of Rs.5/- each Paid UP 6,34,68,005 shares of 3173.40 Rs.5/- each fully paid up Add Forfeited Shares 2.63 Total 3176.03 6,66,666 15% Cumulative 666.67 Redeemable Preference shares of Rs.100/- each fully paid up Total 3882.70 The petitioner-company started its commercial operations somewhere in the year 1993. As per the Page 3 of 58 O/COMP/247/2008 CAV JUDGMENT averment made in 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 1.4.2008. 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 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. The appellate authority decided the said appeal, remanded the matter back to the BIFR. However, till filing of the petition, the said reference of the company was not registered.
2.2. The petitioner-company has given the reason for the need for restructuring in paragraph 7.3 of the petition and material provisions of the proposed scheme of arrangement Page 4 of 58 O/COMP/247/2008 CAV JUDGMENT and compromise are provided in paragraph 9 of the petition.
2.3. It has also averred in the petition that earlier also, the scheme of compromise with the creditors was proposed by the petitioner-company by filing Company Petition No.111 of 2005.
However, the scenario had changed and the terms offered vide the said scheme in collaboration with the investors were different. The said scheme was withdrawn. Yet, another scheme was filed before this Court by filing Company Petition No.403 of 2007. The same was also withdrawn by the petitioner on 11.4.2008 and by way of this petition, the new scheme is produced for approval of this Court.
2.4. The petitioner-company has also pointed out in the petition that this Court passed an order on 16.7.2008 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 Page 5 of 58 O/COMP/247/2008 CAV JUDGMENT 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.
2.5. Thus, since the proposed composite scheme of compromise and arrangement has been duly approved by 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.
2.6. This Court passed an order on 23.9.2008 by which the petition was admitted and notice of admission was issued in the concerned newspapers. Notice to Central Government through the Regional Director, Department of Corporate Affairs was also issued in pursuance of which, learned advocate for the Regional Director remained present, filed the reply to which rejoinder is filed by the petitioner-company. One of the Page 6 of 58 O/COMP/247/2008 CAV JUDGMENT shareholders having more than 5,000 shares also appeared through his advocate and filed the objections to which also, necessary reply is filed by the petitioner-company.
2.7. 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. 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.
2.8. 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 Page 7 of 58 O/COMP/247/2008 CAV JUDGMENT (Prohibition of Fraudulent and Unfair Trade Practices relating to Security Market) Regulation, 2003. The petitioner-company has suppressed the fact that investor Nirma 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. 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.
2.9. The manner, method and procedure of voting adopted in the meeting are illegal. Therefore, the meeting and its result and approval of the scheme is illegal. Nirma Industries and Nirma Chemical Works Limited are legally not entitled to vote.
2.10. 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. Hence, principle of res-judicata would be applicable.
Page 8 of 58 O/COMP/247/2008 CAV JUDGMENT2.11. The petitioner-company has not complied with the mandatory requirement of Section 391 of Companies Act of 1956.
2.12. 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. Said notice is non-est in the eye of law.
2.13. 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.
2.14. The mandatory requirement of Section 101 of the Companies Act are required to be followed whereas the petitioner has prayed for dispensing with the same.
SEBI has passed prohibitory order/direction against the directors of the petitioner-company restraining them from accessing the security Page 9 of 58 O/COMP/247/2008 CAV JUDGMENT market and has prohibited it from buying, selling or dealing in securities directly or indirectly for a period of five years.
2.15. That 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 391(2) of the Companies Act.
2.16. 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.
2.17. 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. Heard learned senior counsel Mr.S.N.Soparkar with learned advocate Mrs.Swati Soparkar for the petitioner, learned advocate Mr.Maulin Raval for Mr.R.J.Raval associates for Page 10 of 58 O/COMP/247/2008 CAV JUDGMENT respondent-objector and learned advocate Mr.Kshitij Amin for learned ASG Mr.Devang Vyas for respondent-authority.
4. Learned Senior Counsel Mr.Soparkar submitted that the Dy.Registrar of Companies has filed an affidavit in these proceedings on 4.12.2008 and he has mainly raised two objections (1) That the petitioner-company was registered as sick company by BIFR in August, 2006. Reference was rejected by BIFR. The appellate forum remanded the matter back to BIFR and, therefore, reliance was placed on the decision rendered by the Division Bench of Bombay High Court in the matter of M/s Ashok Organics Industries Limited in which the Bombay High Court held that once the company becomes sick and is before BIFR, provisions of Sick Industrial Companies Act (`SICA' for short) alone would be applicable and to that extent the provisions of the Companies Act being inconsistent would stand excluded. The Division Bench of Bombay High Court relied upon the decision rendered by the Hon'ble the Supreme Court of India in the case of NGEF Ltd. V/s Chandra Developers Pvt.Ltd. reported in 2005(68) CLA 324. The Division Bench further held that once the industrial company make reference under Section 15 of the SICA, the Company Court would have no jurisdiction for sanction of scheme of Page 11 of 58 O/COMP/247/2008 CAV JUDGMENT arrangement and compromise with its creditors and shareholders. (2) Second objection is that the petitioner-company has not passed special resolution under Section 100 read with Rule 85 of The Companies (Court) Rules and, therefore, requested that the petition be dismissed.
4.1. Learned Senior Counsel Mr.Soparkar submitted that aforesaid two objections raised by the Dy.Registrar of Companies are required to be discarded in view of the fact that petitioner- company has filed additional affidavit which is produced at page 379 of the compilation. By way of the said affidavit, the petitioner has stated that the petitioner had filed Miscellaneous Application in Case No.69 of 2006 before BIFR for deregistration of reference filed earlier on the ground that the company is not a sick company anymore. BIFR, therefore, passed an order on 16.7.2014 and held that the company has ceased to be a sick industrial company and the company is discharged from the purview of SICA/BIFR. Learned Senior Counsel has referred to the said order passed by BIFR which is produced at page 380. Thus, learned senior counsel submitted that in view of the order passed by BIFR, company is not a sick industrial unit and no application is pending before BIFR.
Page 12 of 58 O/COMP/247/2008 CAV JUDGMENT4.2. In response to the second objection taken by Dy.Registrar, learned counsel submitted that if the company has passed resolution under Section 391 of the Companies Act, no separate resolution is required to be passed under Section 100 of the Companies Act. He contended that this issue is decided by this Court and he placed reliance upon the decision rendered by this Court in the case of Manekchowk and Ahmedabad Manufacturing Company Limited V/s State of Gujarat reported in 1970(40) CC 819, it is held as under:
"In view of the aforesaid discussion, in my opinion, the further issue of shares to unsecured creditors in satisfaction of their claims as provided in the scheme cannot be said to be issue of shares either at a discount or on misrepresentation or for no consideration or for consideration other than cash.
That takes me to the last attack under the head "reorganization of share capital", namely, that the scheme envisages reduction of share capital and that cannot be done without following the procedure as prescribed in section Page 13 of 58 O/COMP/247/2008 CAV JUDGMENT 100 onwards of the Companies Act, even if it be done as part of the scheme. I have already pointed out above that reorganization of the share capital can be carried out as a part of a scheme of compromise and arrangement under section 391 without following the whole gamut of the procedure prescribed for the same in other parts of the Companies Act.
However, rule 85 makes a special departure in case of reduction of share capital when it is to be carried out as part of the scheme of compromise and arrangement. Rule 85 which I have already referred to earlier, provides that when reduction of share capital is to be effected as part of a scheme of compromise and arrangement, procedure prescribed for the same in the Companies Act and Rules should be carried out as stated earlier. This provision is made for very good reasons. It unmistakably indicates that reorganization of share capital can be brought about as part of the scheme of compromise and arrangement. But even if it is to be done as part of the scheme of compromise and arrangement this special provision in rule 85 enjoins a duty to carry out Page 14 of 58 O/COMP/247/2008 CAV JUDGMENT the procedure contained in section 100 onwards of the Companies Act.
Ordinarily, reduction of share capital affects members of the company and it can be brought about by a compromise or arrangement between the company and its members ignoring the creditors. Now, if reduction of share capital involves repayment of a part of paid up capital or extinguish or reduce the liability on any of the shares in respect of unpaid share capital it would adversely affect the creditors. Yet the creditors would have no voice in the matter. If the procedure as provided in section 100 onwards has got to be carried out the court could not sanction reduction of share capital unless the creditors are heard and provision is made for the creditors who object to the reduction.
However, if the reduction of share
capital does not involve either
diminution of liability in respect of
unpaid share capital or payment to any shareholder of any paid up capital, the court can sanction the same without reference to the creditors. The creditors in such a case would not even be entitled to object to the proposed Page 15 of 58 O/COMP/247/2008 CAV JUDGMENT reduction as provided in section 102. In the instant case, admittedly, the reduction of share capital is by way of cancellation of share capital which is lost or is unrepresented by available assets. In such a case, creditors, even in a reduction simpliciter, are not entitled to object and it makes no difference if reduction is brought about by following the procedure prescribed in section 100 onwards or by way of a scheme of compromise and arrangement. Thus, if it can be done in a given set of circumstances as part of a scheme of compromise and arrangement, it has been properly done in this case and while sanctioning the scheme ipso facto the reduction of share capital ought to be confirmed."
4.3. Learned counsel thereafter has placed reliance upon the decision rendered by this Court in the case of Elitcore Technologies P.Ltd. V/s State of Gujarat, reported in [2013]176 CC 297 (Guj), it is held as under:
"10. The Regional Director has filed an additional affidavit in response to the rejoinder filed on behalf of the Page 16 of 58 O/COMP/247/2008 CAV JUDGMENT petitioner-companies raising further objections, viz. (i) there is no system and manner provided under the Companies Act, 1956, to ascertain the unit- wise/undertaking-wise authorised share capital in case of demerger, thus business-wise bifurcation is not lawful;
(ii) there is no mechanism in the provisions of the Companies Act, 1956, to devise and/or reduce the authorised share capital of any company and to give credit in respect of fees and stamp duty already paid, to any other company under the circumstance; (iii) there is no provision in the Companies Act, 1956, for decrease/reduction in the authorised share capital of a company; (iv) the MCA 21 system does not allow the Registrar of Companies to effect such reduction in the authorised share capital, in absence of specific provisions in the Companies Act, 1956; and (v) the scheme of arrangement is not in accordance with the provisions of the Companies Act, 1956 and should not be granted sanction by the court.
12. With regard to the objections contained in the additional affidavit Page 17 of 58 O/COMP/247/2008 CAV JUDGMENT filed by the Regional Director, Mr.Mihir Joshi, the learned senior advocate has submitted that in so far as the first objection is concerned, the shareholders' fund comprising of shareholders' capital, reserves and surplus of the demerged company will no longer be fully represented by the available assets. To reflect the same as an integral part of the scheme, the shareholders' fund comprising of share capital, reserves and surplus will have to be reduced or utilised, as the came may be. In any case, the shareholders have approved the scheme, therefore, this objection may not be countenanced. Further, reconstruction entails business-wise bifurcation, which is within the purview of the arrangements contemplated under sections 391 to 394 of the Companies Act and the same is permissible. Regarding the second, third and fourth objections, the learned senior advocate has submitted that section 391 is a complete code in itself and once the scheme of arrangement falls squarely within the four corners of this section, it can be sanctioned, even if it involves doing acts for which the Page 18 of 58 O/COMP/247/2008 CAV JUDGMENT procedure is specified in the other sections of the Companies Act. It is submitted that it is now established and accepted in a number of cases by various High Courts and this court that the principle of single window clearance permits all other formal requirements of the Companies Act, such as approval of change of objects or any other alteration of the memorandum of association and all other consequential or incidental changes required for implementing the scheme, to be formalised in a single petition. It is further submitted that there is no requirement of paying registration fees and stamp duty, as the demerged company has already paid the requisite registration fees and stamp duty payable under the statute. Having once duly paid the amounts on periodic increases in share capital, further duty and charges cannot be levied when part of the same share capital becomes the share capital of the resulting company by effect of law. In support of this submission, reliance has been placed upon the following judgments:
(i) Bazley Finvest Ltd., In re reported Page 19 of 58 O/COMP/247/2008 CAV JUDGMENT in [2005]64 SCL 480 (Guj).
(ii) Alchemist Ltd. and Alchemist Foods Ltd., In re reported in [2010] 160 Comp Cas 469 (Delhi)
(iii) Aegis Healthcare P.Ltd., In re reported in [2008]146 Comp Cas 53(Guj).
(iv) Ashim Investment Co.Ltd., In re reported in [2007]138 Comp Cas 89 (Delhi).
15. Having heard learned counsel for the respective parties and upon consideration of the submissions made by them and the judgments cited at the Bar, this court is of the considered view that none of the objections raised by the Regional Director are sustainable. Though the judgments in Bazley Finvest Ltd., In re [2005]64 SCL 480 and Aegis Healthcare P.Ltd., In re [2008]146 Comp Cas 53 (Guj), have been rendered in cases of amalgamation, however, the judgments in the cases of Alchemist Ltd.
And Alchemist Foods Ltd., In re [2010]160 Comp Cas 469(Delhi) and Ashim Investment Co.Ltd., In re [2007]138 Comp Cas 89 (Delhi), are in the cases of demerger. Moreover, in Bazley Finvest Ltd., In re [2005]64 SCL 480 (Guj), this Page 20 of 58 O/COMP/247/2008 CAV JUDGMENT court has approved the ratio in the case of Ashim Investment Co.Ltd., In re [2007]138 Comp Cas 89 (Delhi), which is a case of demerger. The principle of law laid down by the courts in these judgments, namely, that section 391 is a complete code and the principle of single window clearance permits all other formal requirements of the Companies Act, required for implementing the scheme to be formalised in a single petition would, in the view of this court, apply to cases of demerger as well as amalgamation."
4.4. Thus, learned senior counsel Mr.Soparkar submitted that Section 391 of Companies Act is a complete code and the principle of single window clearance permits all other formal requirements of the Companies Act required for implementing the scheme to be formalized in a single petition would apply to cases of demerger as well as amalgamation. He, therefore, submitted that the second objection taken by the Dy.Registrar is also not tenable.
4.5. Learned Senior Counsel Mr.Soparkar referred to the objections filed by objector Pradip Balubhai Desai filed on 12.8.2009 and Page 21 of 58 O/COMP/247/2008 CAV JUDGMENT submitted that the objections raised by the said objector are required to be discarded. He submitted that the said objections have been filed with a malafide intention and ulterior motive. The same would result in delaying the pending proceedings for the sanction of the scheme which has been approved by the requisite statutory majority at the respective meetings of the shareholders and lenders. Baseless allegations have been made by the objector regarding the bonafides of the proposed scheme. Learned counsel submitted that the present scheme of compromise with the lenders is proposed by the petitioner-company which was not party to SAT proceedings. He then contended that the fact of previous proposals of compromise has been clearly stated both in the scheme as well as in the petition. The previous proposals of the scheme could not be approved by the lenders in the first case and could not be placed for financial consideration of the shareholders and creditors in the second case. Hence, the same were withdrawn. The terms of the compromise with the lenders in the present scheme are materially different which has been duly approved by the majority of equity and preference shareholders as well as class `A' and class `B' lenders of the company at the respective meetings. He, therefore, submitted that principle of res Page 22 of 58 O/COMP/247/2008 CAV JUDGMENT judicata would not be applicable to the present proceedings and, therefore, the present petition is maintainable.
4.6. Learned senior counsel thereafter submitted that the voting adopted at the meeting is not illegal. Nirma Industries Limited and Nirma Chemical Works Limited and other sister concerns have exercised their voting rights in accordance with their respective share holding as per the registers of the company as on the date of the meeting. The same method of voting has been adopted for all the shareholders present at the meeting. Thus, no preferential treatment has been given to the investor at the said meeting. Learned counsel referred to page 313 of the compilation and submitted that even assuming without admitting that the votes cast by Nirma Industries Limited and its sister concerns should not be taken into account in view of the decision rendered by SAT and then the Hon'ble Supreme Court, even then the present scheme has been approved by the requisite majority of the shareholders present and voted at the said meeting.
4.7. Learned senior counsel thereafter contended that the petitioner-company has complied with the mandatory requirements provided Page 23 of 58 O/COMP/247/2008 CAV JUDGMENT under Section 391 of the Companies Act. Notices were duly issued to the shareholders and lenders. The publication of the said notice has been made in the newspaper and as directed by this Court in the order dated 16.7.2008 passed in Company Application No.401 of 2008. The individual notices have been sent to each and every shareholders and therefore shareholders residing at other places have been informed about the said meeting as required under the provisions of the Act. Thus, the contention of the objector with regard to the issuance of advertisement in the English daily newspaper only in Ahmedabad edition is required to be discarded.
4.8. Thereafter, learned counsel contended that the objection of the objector that no notice was issued to the Central Government as required under Section 394(A) of the Companies Act is factually incorrect. Notice was in fact duly served to the concerned authority of the Central Government on 30.9.2008. Hence, Mr.R.K.Dalmiya, Dy.Registrar of Companies has filed the affidavit on 4.12.2008.
4.9. Learned senior counsel once again submitted that since the reduction of capital is proposed as an integral part of the scheme under the accepted principle of `single window Page 24 of 58 O/COMP/247/2008 CAV JUDGMENT clearance', separate procedure is not required to be followed under Section 100 of the Companies Act.
4.10. Learned senior counsel has placed reliance upon the decision rendered by the Hon'ble the Supreme Court in the case of Miheer H Mafatlal V/s Mafatlal Industries Limited reported in 87 CC 792 wherein the Hon'ble the Supreme Court has held as under:
"However, the further question remains whether the court has jurisdiction like an appellate authority to minutely scrutinise the scheme and to arrive at an independent conclusion whether the scheme should be permitted to go through or not when the majority of the creditors or members or their respective classes have approved the scheme as required by section 391(2). On this aspect, the nature of compromise or arrangement between the company and the creditors and members has to be kept in view. It is the commercial wisdom of the parties to the scheme who have taken an informed decision about the usefulness and propriety of the scheme by supporting it by the requisite majority Page 25 of 58 O/COMP/247/2008 CAV JUDGMENT vote that has to be kept in view by the court. The court certainly would not act as a court of appeal and sit in judgment over the informed view of the concerned parties to the compromise as the same would be in the realm of corporate and commercial wisdom of the concerned parties. The court has neither the expertise nor the jurisdiction to delve deep into the commercial wisdom exercised by the creditors and members of the company who have ratified the scheme by the requisite majority.
Consequently, the company court's
jurisdiction to that extent is
peripheral and supervisory and not
appellate. The court acts like an umpire in a game of cricket who has to see that both the teams play their game according to the rules and do not overstep the limits. But subject to that how best the game is to be played is left to the players and not to the umpire.
The Hon'ble Supreme Court further observed as under:
"xxxx However, the court is really not concerned with the exact details of the Page 26 of 58 O/COMP/247/2008 CAV JUDGMENT matter and if the shareholders approved the scheme by the requisite majority, then the court only looks into the scheme as to find out that it is not manifestly unfair and/or is not intended to defraud or do injustice to the other shareholders."
4.11. Learned senior counsel Mr.Soparkar contended that the allegation made by the objector that the petitioner has suppressed the material fact in the petition is not correct. He submitted that as per Rule 79 of the Companies (Court) Rules, 1959, the petition for proposed compromise or arrangement is required to be filed as per Form No.40. Learned counsel referred to Form No.40 of The Company (Court) Rules and submitted that the present petition is filed as per the prescribed form.
4.12. Learned counsel has placed reliance upon the decision rendered by the Hon'ble the Supreme Court in the case of Mayar (H.K.)Ltd. And others v/s Owners & Parties, Vessel M.V.Fortune Express and others, reported in 2006(3) SCC 100, more particularly, observation made in paragraph 18 of the said decision which reads as under:
"18. As per law of pleadings under Order Page 27 of 58 O/COMP/247/2008 CAV JUDGMENT 6 Rule 2 of the Code, every pleading should contain, and contain only, a statement in a concise form of the material facts on which the party relies for his claim or defence, as the case may be. Thus, the facts on which the plaintiff relies to prove his case have to be pleaded by him. Similarly, it is for the defendant to plead the material facts on which his defence stands. The expression "material facts" has not been defined anywhere, but from the wording of Order 6 Rule 2 the material facts would be, upon which a party relies for his claim or defence. The material facts are facts upon which the plaintiff's cause of action or the defendant's defence depends and the facts which must be proved in order to establish the plaintiff's right to the relief claimed in the plaint or the defendant's defence in the written statement. Which particular fact is a material fact and is required to be pleaded by a party, would depend on the facts and circumstances of each case."
5. On the other hand, learned advocate Mr.Maulin Raval appearing for the objector mainly Page 28 of 58 O/COMP/247/2008 CAV JUDGMENT contended as under:
5.1. 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.
5.2. 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. The Hon'ble the 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.
5.3. The petitioner has not placed on record the order dated 6.6.2008 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 5.6.2008 passed by SAT in case of Nirma Industries Limited before this Court.
5.4. 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 Page 29 of 58 O/COMP/247/2008 CAV JUDGMENT time, reference was pending before BIFR. However, from the affidavit filed by the Director of the petitioner on 25.6.2015 produced at page 379, it is clear that 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.
5.5. The objection is taken by the Axis Bank- one of the secured creditors by communication dated 25.8.2008. Learned counsel has referred to the said communication which is produced at page 148 of the compilation.
5.6. Proviso of Section 391(1)(2) of the Companies Act, 1956 provides that:
"[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 Page 30 of 58 O/COMP/247/2008 CAV JUDGMENT 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 under sections 235 to 351, and the like.]"
5.7. Learned counsel contended 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.
5.8. Reliance is placed on the decision rendered by the Hon'ble the Supreme Court in the case of Meghal Homes (P) Ltd. V/s Shree Niwas Girni K.K.Samiti and others reported in 2007(7) SCC 753 and more particularly observation made in paragraphs 51 and 52 as under:
"51. We see no difficulty in reconciling the need to satisfy the requirements of both Sections 391 to 394-A and Section 466 of the Companies Act while dealing with a company which has been ordered to Page 31 of 58 O/COMP/247/2008 CAV JUDGMENT be wound up. In other words; we find no incongruity in looking into aspects of public interest, commercial morality and the bona fide intention to revive a company while considering whether a compromise or arrangement put forward in terms of Section 391 of the Companies Act should be accepted or not. We see no conflict in applying both the provisions and in harmoniously construing them and in finding that while the court will not sit in appeal over the commercial wisdom of the shareholders of a company, it will certainly consider whether there is a genuine attempt to revive the company that has gone into liquidation and whether such revival is in public interest and conforms to commercial morality.
52. We cannot understand the decision in Miheer H.Mafatlal V.Mafatlal Industries Ltd. as standing in the way of understanding the scope of the provisions of the Act in the above manner. We are therefore satisfied that the Company Court was bound to consider whether the liquidation was liable to be stayed for a period or permanently while Page 32 of 58 O/COMP/247/2008 CAV JUDGMENT adverting to the question whether the scheme is one for revival of the company or that part of the business of the company which it is permissible to revive under the relevant laws or whether it is a ruse to dispose of the assets of the company by a private arrangement. If it comes to the latter conclusion, then it is the duty of the court in which the properties are vested on liquidation, to dispose of the properties, realise the assets and distribute the same in accordance with law."
5.9. Reliance is also placed on the decision rendered by the Hon'ble the Supreme Court of India in the case of Tata Motors Limited V/s Pharmaceutical Products of India Limited and Anr. reported in AIR 2008 SC 2805 wherein the Hon'ble the Supreme Court held that provisions of SICA would prevail over the provisions of the Companies Act when the reference to BIFR in respect of sick company is pending, scheme for its revival/rehabilitation was pending under consideration before the BIFR. The scheme of arrangement under Section 391 of the Companies Act presented before the Company Court/High Court which was sanctioned by the High Court is not Page 33 of 58 O/COMP/247/2008 CAV JUDGMENT permissible.
5.10. 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.
6. Learned senior counsel Mr.Soparkar in response to the arguments canvassed by the learned advocate Mr.Raval in rejoinder submitted that the objector is having only 5000 shares of the petitioner-company and except the said objector, nobody has raised the objection before this Court. He contended that the respective shareholders and the lenders have given their approval of the proposed scheme by statutory majority and therefore the objections raised by the single objector is required to be discarded. Under Section 391 of the Companies Act, the compromise arrived at between the parties which had taken place after rounds of negotiation whereby the issues were settled. Therefore, merely because once the scheme was withdrawn by the petitioner-company before this Court cannot Page 34 of 58 O/COMP/247/2008 CAV JUDGMENT preclude the petitioner-company once again by filing a fresh scheme before this Court. With regard to contention of the stale scheme raised by the objector, it is submitted that only one shareholder has objected about the stale scheme. He placed reliance upon the provision of Section 392 of the Companies Act and submitted that creditors have not approached before this Court. Proviso of Section 391(2) of the Companies Act refers to the pendency of investigation proceedings in relation to the company under Section 235 to 351 of the Companies Act whereas in the present case, the inquiry was made under SEBI Act. SEBI has never prohibited the petitioner-company for transferring the shares of the company or dealing with the shareholders of the company. By way of the prohibitory order, the petitioner-company was restrained from accessing the securities market and prohibited from buying, selling or dealing in the securities directly or indirectly for a period of five years.
6.1. The reference was pending before BIFR after the matter was remanded by the appellate authority. However, by an order dated 16.7.2014, BIFR held that the company has ceased to be sick industrial company and is discharged from purview of SICA/BIFR.
Page 35 of 58 O/COMP/247/2008 CAV JUDGMENT6.2. Even if the vote cast by Nirma Industries Limited and its sister concern is ignored, even then, as per the statement produced at page 313 of the compilation, other majority has also approved the scheme.
6.3. Learned advocate Mr.Kshitij Amin appearing for Dy.Registrar mainly contended that when this petition was filed in the year 2008, the petitioner-company was registered as sick company in BIFR. On the date on which the same was presented before this Court, it was not maintainable in view of the decision rendered by the Hon'ble Supreme Court in the case of NGEF Ltd. V/s Chandra Developers Pvt.Ltd. reported in (2005)68 CLA 324. He then contended that the petitioner-company has not passed special resolution under Section 100 read with Rule 85 of the Companies (Court) Rules and, therefore, also the petition be dismissed.
7. I have considered the submissions advanced on behalf of learned advocates for the parties. I have also considered the documents produced on record and the provision of law relied upon by the learned advocates as well as decisions cited at the bar.
8. The following important aspects have Page 36 of 58 O/COMP/247/2008 CAV JUDGMENT emerged from the record.
(a) The scheme of compromise with the creditors of the petitioner-company was proposed by filing Company Petition No.111 of 2005 and the same was withdrawn by the petitioner-company. The petitioner-company proposed new scheme of compromise and filed Company Petition No.403 of 2007. The same was also withdrawn on 11.4.2008.
(b) This petition is filed with another scheme on 20.9.2008.
(c) In the meantime, the petitioner-company approached the BIFR for seeking a reference for declaration as a sick company in September, 2005 and again in August, 2006. The said reference was registered as Case No.69 of 2006. The same was rejected vide order dated 28.12.2006. Appeal No.61 of 2007 was preferred against the said order. The appellate authority remanded the matter back to BIFR.
(d) During the pendency of this petition, the petitioner-company filed Miscellaneous Application in Reference Case No.69 of 2006 pending before the BIFR for deregistration of the reference on the ground that the company is not a sick company any more. BIFR passed an order on Page 37 of 58 O/COMP/247/2008 CAV JUDGMENT 16.7.2014 and held that the company is ceased to be a sick industrial company and that the company is discharged from the purview of SICA/BIFR.
(e) The scheme of compromise and arrangement is proposed by the petitioner-company under Section 391(1) of the Companies Act, 1956. The composite scheme is produced at Annexure `C' page 37 of the compilation.
(f) This Court passed an order on 16.7.2008 whereby the petitioner-company was directed to convene separate meetings of the respective shareholders and class of lenders of the company for the purpose of approving the composite scheme of compromise and arrangement. The said meeting was held and it is the case of the petitioner that it has been approved by the statutory majority in the meeting of respective shareholders and lenders.
(g) The objector has raised various objections against the approval of the composite scheme proposed by the petitioner-company.
9. From the aforesaid facts, it is clear that when the petitioner has preferred this petition in September, 2008, the reference filed by the petitioner was pending before BIFR. The Page 38 of 58 O/COMP/247/2008 CAV JUDGMENT same was recently disposed off by BIFR by an order dated 16.7.2014 on Miscellaneous Application moved by the petitioner-company. Thus, when the present petition was filed in September, 2008, the petitioner was not entitled to file this petition and it was not maintainable. This Court is required to consider what was the position on the date of filing of this petition. If on the date of filing of this petition, the same is not maintainable, merely because now it is pending since last seven years, the same cannot be considered on merits. Thus, this Court is of the opinion that this petition is required to be dismissed only on this ground in view of the decision rendered by the Hon'ble Supreme Court in the case of NGEF Limited (supra).
10. The Hon'ble Supreme Court in the case of Tata Motors Ltd.(supra), has held in paragraph 20 as under:
"20. SICA is a special statute. It is a selfcontained Code. The jurisdiction of the Company Judge in a case where reference had been made to BIFR would be subject to the provisions of SICA."
The Hon'ble Supreme Court has further held in Page 39 of 58 O/COMP/247/2008 CAV JUDGMENT paragraph 26 as under:
"26.What in this case, however, has been contended is that BIFR had no jurisdiction to make a scheme as envisaged under Section 391 of the Act. Even otherwise, `civil court' has a definite connotation. The jurisdiction of the Company Court is now vested in the Tribunal. Therefore, it will be difficult to hold, in view of a changed situation, that Section 26 ousts the jurisdiction of the Company Court in totality. The decision, however, also says that the special statute shall prevail over the general rule."
11. In this petition, the petitioner-company has prayed that the composite scheme of compromise and arrangement referred to in paragraph 9 of the petition and produced at Annexure `C' be sanctioned. However, if the contents of the said scheme are carefully seen, certain important dates are mentioned in the said scheme, for example, Part II of the scheme provides for Scheme of Corporate Debt Restructure and in the said part in clause iii, the terms of DDBs are provided. Clause d,e,f under the said head provides as under:
Page 40 of 58 O/COMP/247/2008 CAV JUDGMENT"d. The redemption dates referred in cl.
(c) above shall be earlier of 30th November 2008 or the date after six months from the Effective date (for convenience if such date falls within calender month then the date shall be first day of he succeeding month).
e. The company undertakes to list the DDBs on BSE/NSE before November 30, 2008 or within 6 months of the effective date whichever is earlier.
f. In the event, the company fails to comply with `e' above, the company/investor undertake to make prepayment of DDBs on or before December 30, 2008. Such prepayment of DDBs shall be at Net Present Value considering the discounted rate @11% per annum."
12. In the composite scheme, part IV provides for Reduction and Reconstructing Of Capital. Clause III provides for capital reduction under the said head and clause B Preference Shares Scheme of reorganisation/redemption of 15% cumulative preference shares is prescribed. Class ii under Page 41 of 58 O/COMP/247/2008 CAV JUDGMENT the said head provides that:
"(ii) xxxxx The amount so finalized as settled shall be discharged by issue of DDBs on the same terms and conditions to be issued to lenders. Company at its option will prepay on or before 31st Dec.2008 the amount of DDBs at 11% discounted rate."
13. Part VII provides for other terms and conditions applicable to the company and all the lenders. In it, clause 2(b)(c) provides as under:
"b) The Company shall take all such measures as may be necessary for the purpose of effecting listing and trading of post-restructuring equity shares of the company on Bombay Stock Exchange and National Stock Exchange on or before November 30, 2008 or within 6 months of the Effective Date whichever is earlier.
The company shall comply with all procedural compliances as may be required to keep the company's equity shares listed and admitted to trading on Bombay Stock Exchange and National Stock Exchange at all times.
Page 42 of 58 O/COMP/247/2008 CAV JUDGMENTc) The company shall not reorganize or change capital structure in any way, except where the existing equity holding of Secured Lenders is kept intact, including issuance of convertible instruments in India/abroad till December 31, 2020 or six monthly installment due whichever is later, without prior permission of the DDB holders."
14. Thus, from the aforesaid clauses mentioned in the scheme, it is clear that aforesaid dates are relevant and important dates. However, the petitioner-company has not proceeded with this petition within reasonable time. After a period of eight years, now the proposed scheme cannot be sanctioned in the present format and learned advocate Mr.Maulin Raval appearing for the objector is right in submitting that this scheme can be said to be a stale scheme. Hence, the same is not required to be sanctioned on this ground also.
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 Page 43 of 58 O/COMP/247/2008 CAV JUDGMENT 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-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 Page 44 of 58 O/COMP/247/2008 CAV JUDGMENT 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 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 Page 45 of 58 O/COMP/247/2008 CAV JUDGMENT 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 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 Page 46 of 58 O/COMP/247/2008 CAV JUDGMENT 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 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.
Page 47 of 58 O/COMP/247/2008 CAV JUDGMENT17. 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 petitioner-company in the respective meetings, perhaps the respective shareholders and lenders would not have voted in favour of the scheme. The Page 48 of 58 O/COMP/247/2008 CAV JUDGMENT 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 [Tribunal] directs.Page 49 of 58 O/COMP/247/2008 CAV JUDGMENT
(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 Page 50 of 58 O/COMP/247/2008 CAV JUDGMENT 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 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 Page 51 of 58 O/COMP/247/2008 CAV JUDGMENT 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.
18. Thus, in the present case, the petitioner-company has not disclosed all material facts relating to the company such as order passed by SEBI as well as the order passed by SAT in case of Nirma Industries Limited and, therefore, I am not inclined to exercise the powers under Section 391 of the Companies Act. Thus, the present petition is required to be dismissed on this ground also.
19. Thus, in view of the facts and circumstances of the present case, the decision relied upon by learned senior counsel Mr.Soparkar in the case of Mayar (H.K.) Limited (supra) is not helpful to the petitioner.
20. Learned senior counsel Mr.Soparkar has relied upon the decision rendered by the Hon'ble Supreme Court in the case of Miheer Mafatlal (supra) and submitted that in the scheme of amalgamation, arrangement, this Court is having very limited jurisdiction to interfere with the scheme proposed by the company. Once the broad parameters are complied with, the Court will not Page 52 of 58 O/COMP/247/2008 CAV JUDGMENT scrutiny the scheme or refuse sanction merely because better scheme is possible. In the said decision, the Hon'ble Supreme Court has laid down the scope and ambit of the jurisdiction of the Company Court for exercising the jurisdiction under Sections 391 to 394 of the Companies Act.
The observation of the Hon'ble Supreme Court are as under:
"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:
(1) The sanctioning court has to see to 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(2).
(3) That the concerned meetings of
the creditors or members or any
Page 53 of 58
O/COMP/247/2008 CAV JUDGMENT
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(1).
(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 Page 54 of 58 O/COMP/247/2008 CAV JUDGMENT 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 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 broad parameters about the requirements 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 Page 55 of 58 O/COMP/247/2008 CAV JUDGMENT with their open eyes have given their approval to the scheme even if in the view of the court there could 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.
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."
21. From the aforesaid guidelines laid down by the Hon'ble Supreme Court, it is clear that in the concerned meeting of the creditors or members, the relevant material is required to be placed before them to enable the voters to arrive at an informed decision for approving the scheme in question. It is further clear that all Page 56 of 58 O/COMP/247/2008 CAV JUDGMENT necessary material indicated by Section 393(1)(a) is required to be placed before the voters at the concerned meeting and all the requisite material contemplated by the proviso to Section 391(2) of the Companies Act is required to be placed before the Court by the concerned applicant seeking sanction for such a scheme and the Court gets satisfied about the same.
22. Thus, in the facts and circumstances of the present case, 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, this 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.
23. The contention is taken by the learned advocate Mr.Kshitij Amin appearing for the Registrar of Companies as well as learned advocate Mr.Maulin Raval appearing for the objector that the petitioner-company has not followed mandatory requirement of Sections 100 and 101 of the Companies Act. As per the scheme, share capital is being reduced and therefore the petitioner is required to follow the mandatory Page 57 of 58 O/COMP/247/2008 CAV JUDGMENT procedure. However, this contention taken by learned advocates for the respondents is required to be discarded in view of the decision rendered by this Court in the case of Manekchowk (supra) and the decision rendered by this Court in the case of Elitcore (supra), this Court has specifically observed that Section 391 is a complete code and a principle of single window clearance permits all other formal requirements of the Companies Act required for implementing the scheme to be formalized in a single petition would apply to cases of demerger as well as amalgamation.
24. Thus, in view of the aforesaid discussion, this Court is of the opinion that the present petition deserves to be dismissed and accordingly it is dismissed. Rule discharged.
(VIPUL M. PANCHOLI, J.) Srilatha Page 58 of 58