Gujarat High Court
Legal Representatives Of Bhupendra ... vs N/A on 10 November, 2023
Author: Ashutosh Shastri
Bench: Ashutosh Shastri
NEUTRAL CITATION
C/OJA/13/2019 CAV JUDGMENT DATED: 10/11/2023
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IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/O.J.APPEAL NO. 13 of 2019
In
R/COMPANY PETITION NO. 264 of 2008
With
CIVIL APPLICATION (FOR STAY) NO. 1 of 2019
In
R/O.J.APPEAL NO. 13 of 2019
With
CIVIL APPLICATION (FOR DIRECTION) NO. 2 of 2023
In
R/O.J.APPEAL NO. 13 of 2019
With
CIVIL APPLICATION (FOR DIRECTION) NO. 3 of 2023
In
R/O.J.APPEAL NO. 13 of 2019
With
CIVIL APPLICATION (FOR ORDERS) NO. 4 of 2023
In
R/O.J.APPEAL NO. 13 of 2019
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR. JUSTICE ASHUTOSH SHASTRI
and
HONOURABLE MR. JUSTICE J. C. DOSHI
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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 ?
==================================================
LEGAL REPRESENTATIVES OF BHUPENDRA BHAGWATPRASAD
Versus
N/A.
==================================================
Appearance:
for the Appellant(s) No. 1.1
MR. MIHIR JOSHI, SENIOR ADVOCATE WITH MR. A.S. VAKIL(962) and
MR. SANDIP SINGHI, ADVOCATE for the Appellant(s) No. 1,1.2,2
Page 1 of 133
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NEUTRAL CITATION
C/OJA/13/2019 CAV JUDGMENT DATED: 10/11/2023
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MS. P.J. DAVAWALA(240) for the Opponent(s) No. 1
MR MITUL K SHELAT(2419) for the Opponent(s) No. 1
MRS SANGEETA N PAHWA for the Opponent (s) No
MR DS VASAVADA for the Opponent (s) No.
MR AJ YAGNIK for the Opponent (s) No.
MR PRABHAKAR UPADYAY(1060) for the Opponent(s) No. 1
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CORAM:HONOURABLE MR. JUSTICE ASHUTOSH SHASTRI
and
HONOURABLE MR. JUSTICE J. C. DOSHI
Date : 10/11/2023
CAV JUDGMENT
(PER : HONOURABLE MR. JUSTICE ASHUTOSH SHASTRI) [1] By way of present Appeal, a challenge is made to the final judgment and order dated 12.03.2019 passed by the learned Single Judge in Company Petition No.264 of 2008 by which Company Petition came to be dismissed.
[2] The brief background of the facts leading to rise of present Appeal are to the effect that appellants - original petitioners have filed Company Petition under Sections 391 & 394 of the Companies Act, 1956 (hereinafter referred as to "the Act") which was registered as Company Petition No.264 of 2008 for the reliefs which are set out in paragraph No.19, we deem it Page 2 of 133 Downloaded on : Fri Nov 10 21:04:42 IST 2023 NEUTRAL CITATION C/OJA/13/2019 CAV JUDGMENT DATED: 10/11/2023 undefined proper to quote the same hereunder:-
"(A) that the scheme of compromise/ arrangement (Exh.-A) be sanctioned so as to be binding on all the creditors of the Company as defined under the said scheme of compromise/ arrangement and also be binding on the Company.
(B) to pass such incidental, consequential and supplemental orders and issue such directions as may be thought fit and proper in the facts and circumstances of the case."
[2.1] A scheme of compromise was for revival of Prasad Mills Ltd. (in liquidation) (to be referred as `the Company`) which according to original petitioners, was ordered to be wound up by the Company Court vide order dated 23.08.1988 (the date of the order of winding-up referred in other proceedings / orders is dated 05.5.1989). According to original petitioners, the movable properties of the Company i.e. stock of goods, plant, machineries etc. were disposed of in the year 1998 for aggregate consideration amount of Rs.131 lakhs. However, the land admeasuring about 36971.25 sq. mtrs., which was reduced to some extent on account of acquisition by the Ahmedabad Page 3 of 133 Downloaded on : Fri Nov 10 21:04:42 IST 2023 NEUTRAL CITATION C/OJA/13/2019 CAV JUDGMENT DATED: 10/11/2023 undefined Municipal Corporation for road widening, continued to be in possession of the Official Liquidator with cash in bank balance of the Company's account. In respect of same, the Scheme of Compromise / Arrangement between Prasad Mills Ltd. (in liquidation) and its creditors / members was framed and the terms of the said schemes are reflecting in detailed as narrated in the impugned judgment in paragraph 3, which at a later point of time, the same would be properly reflected in the present order and attempt was made by the original petitioners for giving justification of the scheme and later on, based upon the aforesaid scheme, the Court passed an order for putting the properties (leasehold land) of the Company to sale and one of the promoters of the petitioner No.2, at a relevant point of time, made the highest offer of Rs.7.75 crores in the said process of sale and the Official Liquidator had recommended for confirmation of sale in their favour. Later on, it appears that few persons claiming to be the heirs of the lessor of the land filed Company Applications claiming possession of the land, which applications stated to have been rejected, against which they preferred O.J. Appeals wherein the Appellate Court was Page 4 of 133 Downloaded on : Fri Nov 10 21:04:42 IST 2023 NEUTRAL CITATION C/OJA/13/2019 CAV JUDGMENT DATED: 10/11/2023 undefined pleased to grant interim injunction against the sale of the rights in the said land. Subsequently, It is the case of the original petitioners that the petitioner No.2 had requisite resources to sponsor and support the Scheme of Compromise / Arrangement of the Company that the dues of IDBI being secured creditor of the Company were settled and paid up by the original petitioner No.2, for which the IDBI assigned its right, title and interest in the debt due to IDBI to the company along with its security interest in its favour. In respect of dues related to the SBI, being other secured creditor of the Company had also settled the account for sum of Rs.2,64,14,885/- and the said settled account is proposed to be paid in terms of the scheme. According to the original petitioners, the original petitioner No.2 had acquired 5693 numbers of equity shares of the Company, out of which 3669 equity shares are acquired as assignee of IDBI and 2024 equity shares are acquired as purchasers from various shareholders / contributors of the Company, transfer of which is subject to the approval of this Court as the Company is in liquidation proceedings. Page 5 of 133 Downloaded on : Fri Nov 10 21:04:42 IST 2023
NEUTRAL CITATION C/OJA/13/2019 CAV JUDGMENT DATED: 10/11/2023 undefined [2.2] According to the original petitioners, the IDBI filed Company Application No.414 of 2007 to ratify its action in assigning all its rights, title and interest and underlining security against the Company in favour of the original petitioner No.2 and to consider in terms of Section 536 of the Act, the assignment to the petitioner No.2 of all rights, title, interest and benefits of IDBI together with security interest, including pledge of 3669 fully paid-up equity shares. The said application, after hearing, was allowed by the Court by its order dated 25.8.2008 and the action of IDBI was ratified and the Official Liquidator was directed to effect transfer of above shares in the name of the original petitioner No.2 and to deal with the original petitioner No.2 as assignee of IDBI in future transactions which may take up in the winding-up proceedings. Thereafter, the O.J. Appeals, filed by the heirs of the lessor, were dismissed and the application of the promoter of original petitioner No.2 for direction to accept the recommendation of the Official Liquidator to confirm the sale was also disposed of with O.J. Appeals and the Official Liquidator was directed to proceed with the sale of the leasehold rights of the Company by issuing fresh Page 6 of 133 Downloaded on : Fri Nov 10 21:04:42 IST 2023 NEUTRAL CITATION C/OJA/13/2019 CAV JUDGMENT DATED: 10/11/2023 undefined advertisement. Against such orders, the heirs of the lessor preferred Special Leave to Appeals and simultaneously, the promoter of the original petitioner No.2 also filed SLP. [2.3] It is the assertion of the original petitioners that a report initially was filed by the Assistant Official Liquidator on 10.04.2010 wherein it was stated that the workers of the company made claim of Rs.23,01,46,874/- towards their dues. The said claims of the workers were verified by the Chartered Accountant and the claim of the workers were found admissible to the extent of Rs.7,90,88,784/-. It is further stated that out of the sale proceeds of the assets of the company, an amount of Rs.60 lakhs was paid to the SBI and an amount of Rs.77,32,407/- was paid to the workers of the Company on ad-hoc basis. Subsequently, an amount of Rs.19 lakhs was paid to IDBI on ad- hoc basis and equal amount of Rs.19 lakhs was also paid to the workers on ad-hoc basis. The Official Liquidator had fund of Rs.63,20,965/- in the Company's account. It was further asserted that from the land of the Company, the land admeasuring 1027.06 sq. mtrs., out of 36971.25 sq. mtrs. was Page 7 of 133 Downloaded on : Fri Nov 10 21:04:42 IST 2023 NEUTRAL CITATION C/OJA/13/2019 CAV JUDGMENT DATED: 10/11/2023 undefined acquired by Ahmedabad Municipal Corporation for road widening and towards that an amount of Rs.59,05,962/- by way of compensation was received by the Official Liquidator. It is further stated that the scheme had already been approved by the respective classes of the creditors and the shareholders in their meeting and in principle, the Official Liquidator did not wish to object the scheme of revival of the Company, more particularly, in view of the fact that the claims of the workers of the Company are proposed to be settled and paid in full as per the scheme.
[2.4] It is also reflecting from the impugned order, as stated in paragraph 10, that on behalf of the State of Gujarat, the Under Secretary Shri Ashwinkumar M. Trivedi, Industries and Mines Department has filed an affidavit to the effect that the State Government gave guarantee of Rs.138.06 lakhs to the SBI for the dues of the Company and the State Government then paid Rs.138.06 lakhs to the SBI, which the SBI acknowledged as full and final settlement towards dues of the Company. Simultaneously, on behalf of the Central Government, the Page 8 of 133 Downloaded on : Fri Nov 10 21:04:42 IST 2023 NEUTRAL CITATION C/OJA/13/2019 CAV JUDGMENT DATED: 10/11/2023 undefined Regional Director, Shri Rakesh Chandra has also filed affidavit indicating that if the scheme is to be approved, the Company would automatically become subsidiary of the sponsor company and the original petitioner No.2 since has already 57% of the share capital out of subscribed and paid up share capitals of 10,000 number of equity shares and it has proposed more allotment of equity shares of 2,20,000 to it. It was also pointed out in said affidavit that the entire plants, machineries and superstructure of the Company have already been removed and it is not possible to revive the company for its original business, however, if the object clause of the company provides to do any other business, the same can be proposed by the shareholders for commencing new business activity in the event of the scheme being approved by this Court and other facts are also incidentally stated in the affidavit.
[2.5] It is also reflecting from the assertion that on behalf of the petitioners, an additional affidavit on 28.02.2012 was filed by Shri Shaan Jhaveri, Director of the original petitioner No.2 stating that the petitioners have made payment towards the Page 9 of 133 Downloaded on : Fri Nov 10 21:04:42 IST 2023 NEUTRAL CITATION C/OJA/13/2019 CAV JUDGMENT DATED: 10/11/2023 undefined scheme in the petition and by indicating tabular form such payment is projected which reads as under:-
Particulars of payments made towards scheme (Rs. In lacs) Sr. No. Particulars Amount 1 Govt. of Gujarat on account of SBI 227-38 2 State Bank of India 430-90 3 IDBI 15-00 4 ESIC` 19-19 5 Expenses like legal/ professional fees, 81-72 travelling, administrative etc. Total 774-19 [2.6] It is further appearing that series of applications appear to have been submitted and in that context before the petition could actually be heard finally for consideration of the scheme, one Prasad Mills Kamdar Samiti filed Company Application No.207 of 2014 in the petition for being impleaded as party respondent on the ground that they are represented 521 workers of the Company and stated to have not been taken in the affidavit in connection with proposed scheme and it was also stated that TLA filed a confidence giving consent to the scheme without taking consent of those 521 workers. It is further reflecting that before the said application i.e. Company Page 10 of 133 Downloaded on : Fri Nov 10 21:04:42 IST 2023 NEUTRAL CITATION C/OJA/13/2019 CAV JUDGMENT DATED: 10/11/2023 undefined Application No.207 of 2014 could be decided, Special Leave to Appeal filed by the promoter of the original petitioner No.2 Shri Shaan Jhaveri, who is now the Director of the original petitioner No.2 Company, was disposed of by Hon'ble Apex Court by recording the statement of learned advocate appearing for Shri Shaan Jhaveri that in view of certain orders made in S.L.P No.29282-84 of 2008, his petition did not survive and the same had become infructuous. But according to learned advocate Mr. Apurva Vakil who pointed out that further order dated 01.09.2015 passed by the Hon'ble Apex Court in the pending S.L.Ps of the heirs of the lessor. Operative part thereof are reproduced in an order, which reads as under:-
"We have been apprised by Mr. Apurva Vakil, learned counsel appearing for respondent No.4, who is the petitioner before the High Court in Company Petition No.264 of 2008 (the present petition) that though there has been a request by this Court for proceeding with the matter as per the suggestions given, the same has not yet been done. Regard being made to earlier orders passed, we reiterate the request and expect the High Court to dispose of the petition by end of November 2015. We would also request the High Court not to grant adjournment to either of the parties and the parties are directed not to seek any adjournment before the High Page 11 of 133 Downloaded on : Fri Nov 10 21:04:42 IST 2023 NEUTRAL CITATION C/OJA/13/2019 CAV JUDGMENT DATED: 10/11/2023 undefined Court. Let the application be listed in the second week of January 2016. The Registrar (Judicial) is directed to send copy of this order to the Registrar General of High Court of Gujarat so that the High Court can place it before the concerned Company Judge."
[2.7] It was thereafter submitted that in view of such the Company Application No.207 of 2014 filed by Prasad Mills Kamdar Samiti on behalf of 521 workers was rejected by judgment dated 22.09.2015 and against the said order of rejection, Prasad Mills Kamdar Samiti has filed S.L.P. before Hon'ble Supreme Court, which is stated to be pending. However, no stay had been granted though interim stay has been granted against the proceedings of the present petition. Even, no request was also made on behalf of Prasad Mills Kamdar Samiti not to proceed with the hearing of the petition on account of such pendency of the SLP filed by it before Hon'ble Supreme Court. A fact was stated that the very 521 workers for whom Prasad Mills Kamdar Samiti had filed above Company Application, now the Ahmedabad Mill Mazdoor Union (to be referred as the Union) has come forward with notice of intention dated 29.02.2016 addressed to learned advocate Mr. Page 12 of 133 Downloaded on : Fri Nov 10 21:04:42 IST 2023 NEUTRAL CITATION C/OJA/13/2019 CAV JUDGMENT DATED: 10/11/2023 undefined Vakil for the original petitioners indicating that more than 500 workmen, who are members of the Union, and accordingly, an affidavit dated 29.02.2016 submitted to present their objections against the petition in view of Rule 34 of the Company Court Rules. Based on such notice of intention and affidavit of objections against petition, the Union claims right to be heard for considering their objections against the petition. Accordingly, with these backgrounds, it appears that the petition was heard by the learned Single Judge at length and the petition by the judgment and order dated 12.03.2019 came to be rejected and along with that the Company Application No.437 of 2016 also disposed of, which order is made the subject matter of present Appeal before us.
[3] Proceedings of O.J. Appeal No.13 of 2019 further reveals that in original Company Petition No.264 of 2008, during the course of submission, the written submissions were also submitted in detailed in the month of March, 2019 along with the list of events, the written submissions were also filed by Textile Labour Association dated 04.03.2019 and in addition to, Page 13 of 133 Downloaded on : Fri Nov 10 21:04:42 IST 2023 NEUTRAL CITATION C/OJA/13/2019 CAV JUDGMENT DATED: 10/11/2023 undefined the submission on behalf of Ahmedabad Mill Mazdoor Union also appears to have been submitted and later on, the record reveals that some additional affidavits by the appellants were also filed, one dated 08.05.2019 and another dated 22.10.2021 and with these background of record, the learned advocates appearing on behalf of the respective sides have requested the Court to take up the hearing of main O.J. Appeal i.e. O.J. Appeal No.13 of 2019 and accordingly, the Court took up the hearing. [4] At this stage, we may also mentioned that along with this main O. J. Appeal, which has been argued by learned advocates, have also submitted that Company Application No.427 of 2008 is filed basically for convening / dispensing with the meetings of creditors, equity shareholders, workmen for considering the scheme, whereas Company Application No. 207 of 2014 was filed for seeking permission to be joined as party respondent in the main Company Petition No.264 of 2008. Company Application No.34 of 2013 is also submitted with a request to take on record the objections filed by the applicant opposing the sanction of the scheme of compromise / revival of the company Page 14 of 133 Downloaded on : Fri Nov 10 21:04:42 IST 2023 NEUTRAL CITATION C/OJA/13/2019 CAV JUDGMENT DATED: 10/11/2023 undefined in liquidation, whereas Company Application No.213 of 1996 was also stated to be pending and was filed for permission to dispose of assets of the company in liquidation i.e. Prasad Mills Company Ltd. The said application is filed by official liquidator. Yet another Company Application No. 85 of 1997 is filed for realizing the securities filed by State Bank of India, Ahmedabad, wehereas Company Application No.308 of 1998 is filed by TLA for seeking payment of dues to the workers of Mills Company (in liquidation) to the tune of Rs.23 crores and odd amount. Yet another Company Application No.96 of 1999 is filed by TLA for seeking appropriate direction directing official liquidator to pay the amount of due and payable to the respondent workers whose names have been shown in the judges summons, ex- workers of the Mills Company, whereas Company Application No.323 of 2001 was filed by TLA again for disbursement of entire amount realized by official liquidator by sale of assets of the Company to the workers of Prasad Mills Comapny Limited. Yet another Company Application No.453 of 1999 has been submitted by one of the employees, namely, Dhaniram Ramchandra for directing the official liquidator to pay all the Page 15 of 133 Downloaded on : Fri Nov 10 21:04:42 IST 2023 NEUTRAL CITATION C/OJA/13/2019 CAV JUDGMENT DATED: 10/11/2023 undefined benefits as per the order dated 23.02.1998 passed in Company Application No.9 of 1998.
[5] Large number of applications, interlocutory in nature, have been submitted and as a part of that, one another Company Application No.9 of 1998 again filed by Mr. Daniram to grant permission to proceed with pending Recovery Application No. 300 of 1993 which is pending before the Labour Court, Ahmedabad, whereas Company Application No.414 of 2007 submitted by IDBI Limited to rectify the action of applicant in assigning all rights, title interest and underlying securities in favour of respondent No.2 and Company Application Nos. 33/2004 and 34/2004 were submitted by one Mr. Jabalsinh Laskari seeking declaration that official liquidator has no right to sale the land in question. Yet another Company Application No.462 of 1999 was submitted by Mr. Laskari, as stated above, for seeking recovery of leased land on the ground that Prasad Mills was already ordered to be wound-up, whereas Company Application No.93 of 2008 was filed again by Mr. Laskari and two others claiming to be legal heirs of Mr. Page 16 of 133 Downloaded on : Fri Nov 10 21:04:42 IST 2023 NEUTRAL CITATION C/OJA/13/2019 CAV JUDGMENT DATED: 10/11/2023 undefined Drugaprasad Laskari to recall and stay the operation and implementation of order dated 22.08.2008 passed by the Court in Company Application No.427 of 2008. Company Application No.437 of 2016 was filed by the applicant basically for seeking direction against respondent i.e. Ahmedabad Mills Mazdoor Union be directed to produce the documents referred to in an affidavit dated 29.02.2016 filed in Company Petition No.264 of 2008 and since the main O. J. Appeal was requested to be heard by learned advocates, these applications were not independently argued since the main concentration was with respect to main O. J. Appeals.
[6] Mr. Mihir Joshi, learned senior advocate appearing with Mr. A. S. Vakil and Mr. Sandip Singhi, learned advocates for the appellants has contended that the order under challenge is not only unjust and unsustainable, but also reflects non-application of mind to the material issues involved in the proceedings and as such the exercise undertaken by the learned Single Judge is not in consonance with settled proposition of law. From the findings given by the learned Single Judge, Mr. Joshi, learned Page 17 of 133 Downloaded on : Fri Nov 10 21:04:42 IST 2023 NEUTRAL CITATION C/OJA/13/2019 CAV JUDGMENT DATED: 10/11/2023 undefined senior advocate has summarized few findings from the overall judgment and has submitted that it was observed that there was no move from any side for actual revival of the company from the date of the order of winding-up of the Company till the process for sale of land which was initiated in the year 2006. It has further been contended that revival of the Company, which has gone in liquidation, cannot be de-linked of its objects and cannot be considered irrespective of business activities to be carried out after its revival and it has been observed that there has to be a concrete and specific provision in the scheme as to nature of business activities to be carried on after revival of the Company, in the absence of which, the scheme could be taken as ruse to grab the land of the company under the guise of revival and as such the proposers of the scheme cannot be allowed to fruitfully get away with revival of the scheme with no basic foundation for doing business for the company and provision made in Clause 5 of the scheme for the business of the Company is as vague and thereby disposed of the petition. It has further been pointed out by Mr. Joshi, learned senior advocate that yet another erroneous finding which is reflecting Page 18 of 133 Downloaded on : Fri Nov 10 21:04:42 IST 2023 NEUTRAL CITATION C/OJA/13/2019 CAV JUDGMENT DATED: 10/11/2023 undefined from the order to the effect that against the payment made by the appellant No.2 of Rs.15 Lakhs to IDBI to get assignment of rights of IDBI in its favour, it wants allotment of equity shares and it also wants further allotment of large number of equity share i.e. of 2,20,000 equity shares. The Court finds that though the appellant No.2 claims to have assignment of rights which IDBI had in the above shares against the payment of amount of Rs.15 Lakhs as consideration, it still wants further allotment of equity shares against this very amount paid for setting the dues of IDBI reflect on the intention of the appellant No.2 that the scheme proposed by it is nothing but to swallow the company under the guise of revival of the company and that could not be considered. Mr. Joshi, learned senior advocate has further pointed out from the impugned order that no workmen could be denied to have his say on the grievance that his interest was not duly taken care of for determination on his claim for his dues. It has been pointed out that the Court when asked to learned advocate Mr. Vasavda to provide the copy of the order made for verification / examination of the claims of the workmen for final determination of the dues of the workmen, Page 19 of 133 Downloaded on : Fri Nov 10 21:04:42 IST 2023 NEUTRAL CITATION C/OJA/13/2019 CAV JUDGMENT DATED: 10/11/2023 undefined neither he could provide the copy of any such order nor any other advocate could provide copy of the order, if passed and even Registry could not provide such original record and as such also, the learned Single Judge did not consider the case. A further observation is also pointed out by Mr. Joshi, learned senior advocate from the order that Court finds that it could not be disputed before the Court that IDBI was not the secured creditor against the immovable properties of the Company, and therefore, it could not have been considered as secured creditor in the meeting of the secured creditors which is reflecting from paragraph 53 of the order and in fact, it has been observed that, Naynaben, who was equity shareholder, for whom it is stated that she consented to the scheme has come out with serious grievance in her reply as to way in which the Chairman conducted the meeting with shareholders and these are the broad observations based upon which according to Mr. Joshi, learned senior advocate, an impugned order came to be passed. Hence, for the purpose of meeting with aforesaid broad observations which are reflecting from the impugned order, the learned Single Judge has referred to and relied upon few Page 20 of 133 Downloaded on : Fri Nov 10 21:04:42 IST 2023 NEUTRAL CITATION C/OJA/13/2019 CAV JUDGMENT DATED: 10/11/2023 undefined decisions of the Hon'ble Apex Court while dealing with such finding which according to Mr. Joshi, learned senior advocate are erroneous.
[6.1] Firstly, a reference is made to few observations made by Hon'ble Apex Court in the case of Miheer H. Mafatlal versus Mafatlal Industries Limited reported in (1997) 1 SCC 579 and by referring to paragraphs 28 and 29 of the said judgment has submitted that commercial wisdom of the parties to the scheme ought to have been considered and the Court will not act as a court of appeal and sit in judgment over the informed view of the parties and the court has neither the expertise nor the jurisdiction to delve deep into the commercial wisdom exercised by the creditors and members. It has further contended that the Company Court's jurisdiction 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 and as such by referring to this decision, it has been contended by Mr. Joshi, learned senior advocate that order Page 21 of 133 Downloaded on : Fri Nov 10 21:04:42 IST 2023 NEUTRAL CITATION C/OJA/13/2019 CAV JUDGMENT DATED: 10/11/2023 undefined passed by the learned Single Judge is not sustainable in the eye of law.
[6.2] Yet another decision is also referred to by learned senior advocate which is in the case of Meghal Homes (P) Ltd. versus Shree Nivas Girni K. K. Samiti & Ors. reported in (2007) 7 SCC 753 and by pointing out in paragraph 51, it has been contended that there is no incongruity in looking into aspects of public interest, commercial morality and the bona fide intention to revive a company while considering whether the scheme should be accepted or not and as such has contended that the scope of such test / principle for review, in scheme proceedings, propounded by Hon'ble Apex Court ought to have been taken into consideration having not done so the order is not sustainable.
[6.3] Mr. Mihir Joshi, learned senior advocate has further pointed out yet another decision in case of Larsen and Toubro Ltd. reported in 2004 SCC OnLine Bombay 1082 and by referring to paragraphs 29, 30, 32, 40, 41, 86 and 100, a contention is raised that in this competitive market, the Page 22 of 133 Downloaded on : Fri Nov 10 21:04:42 IST 2023 NEUTRAL CITATION C/OJA/13/2019 CAV JUDGMENT DATED: 10/11/2023 undefined corporate world with exhaustive strategies is a must. If aforesaid scheme, the scope of judicial review is bleak and it is difficult for the courts to express their opinion on such matters since business adjustments or arrangement cannot be decided or thrusted or imposed by the court especially when such arrangement or adjustment or such scheme if within the framework of the law.
[6.4] Mr. Joshi, learned senior advocate has also referred to few other decisions on the issue of public policy and how it has to be dealt with and examined while decision making process. The observations contained in the said decisions have been pressed into service. One judgment in case of Bhagwant Genuji Girme versus Gangabisan Ramgopal reported in ILR 1941 Bombay 71 and by referring to paragraphs 79 and 80, it has been contended that as ordinarily understood, "public policy" is the principle under which freedom of contract or private dealings is restricted by law or the good of the community but then it has been submitted that words "public policy" is a vague and unsatisfactory term, and calculated to lead to uncertainty Page 23 of 133 Downloaded on : Fri Nov 10 21:04:42 IST 2023 NEUTRAL CITATION C/OJA/13/2019 CAV JUDGMENT DATED: 10/11/2023 undefined and error, when applied to the decision of legal rights; it is capable to being understood in different senses and as such the Court while dealing with the scheme has to kept in mind the principles that it is no longer legitimate for the courts to invent a new head of public policy and the Court is not free to speculate upon what in its opinion is for the good of the community of in face. Hence, he has submitted that the conclusions which are arrived at by the Court while passing the impugned order are not in consonance with the law laid down and to substantiate this. Yet another decision is brought to the notice of this Court which is in the case of Gherulal Parakh versus Mahadeodas Maiya & Ors. reported in 1959 Supp (2) SCR 406, paragraphs 21 and 22 have been relied upon. [6.5] In the process of challenging the finding arrived at by the learned Single Judge, the concept of commercial wisdom is also pressed into service and for that purpose, Mr. Joshi, learned senior advocate has made a reference to a decision which is in the case of Ion Exchange (India) Limited reported in 2002 (1) Mh. L.J. 411 (Bom) and by referring to few paragraphs Page 24 of 133 Downloaded on : Fri Nov 10 21:04:42 IST 2023 NEUTRAL CITATION C/OJA/13/2019 CAV JUDGMENT DATED: 10/11/2023 undefined contained in the judgment precisely paragraphs 19, 20 and 26 a contention is raised that the law as it has evolved in the area of merger and amalgamation etc. has recognized the importance of the Court not sitting as an Appellate Authority over the commercial wisdom of those who seek to restructure business. It has been contended that the need for this restatement is all the greater today where the interplay of competition and the forces of the market demand efficiency; cost effectiveness and high levels of productivity etc. are evolved and as such viewed in these context of this business reality, the scheme of amalgamation should in the present case pass muster and by referring to these observations, it has been submitted that so long as it is not unfair the commercial wisdom of the Company and the shareholders may be allowed to proceed ahead and as such keeping the aforesaid principle in mind, learned senior advocate has submitted that the observations contained in the impugned judgment are not in consonance with settled proposition of law. Hence, the illegality which has been committed deserves to be corrected by setting aside the impugned order.
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NEUTRAL CITATION C/OJA/13/2019 CAV JUDGMENT DATED: 10/11/2023 undefined [6.6] Mr. Joshi, learned senior advocate has further submitted that so far as observation raising doubt against the appellants it is thoroughly ill-founded in view of the fact that the word "immoral" is a very comprehensive word. Ordinarily it takes in every aspect of personal conduct deviating from the standard norms of life. But it depends upon time, place and situation prevailing in the society. So the said concept cannot be applied while not considering the scheme. Mr. Joshi, learned senior advocate by referring to decision which is in the case of G.T. Swamy versus Goodluck Agencies reported in 1988 SCC OnLine Karnataka 175 and other decisions has submitted that it is duty of the Court to look into not only the interests of the creditors, but also the conduct of debtor and so long as the scheme does not violate public interest norms, the Court's intervention is uncalled for. Mr. Joshi, learned senior advocate has further submitted that the findings arrived at by the learned Single Judge in dismissing the scheme are not in consonance with a series of decisions which have clearly pointed out the role of the Court. Mr. Joshi, learned senior advocate while Page 26 of 133 Downloaded on : Fri Nov 10 21:04:42 IST 2023 NEUTRAL CITATION C/OJA/13/2019 CAV JUDGMENT DATED: 10/11/2023 undefined reiterating the submission, referred to the following decisions:-
"(i) In Re, Sidhpur Mills Co. Ltd. versus Unknown reported in 1961 SCC OnLine Guj 38.
(ii) Vasant Investment Corporation Ltd. versus Official Liquidator, Colaba Land and Mill Co. Ltd. reported in 1979 SCC OnLine Bom 249.
(iii) Central Inland Water Transport Corporation Limited and another versus Brojo Nath Ganguly and another reported in (1986) 3 SCC 156.
(iv) G.T.Swamy versus Goodluck Agencies
reported in 1988 SCC OnLine Kar 175.
(v) Hindustant Lever Employees' Union versus
Hindustan Lever Ltd. reported in 1995 Supp (1) SCC 499.
(vi) Kundanmal Dabriwala versus Dabriwala Steels and Engineering Company Limited reported in 2009 SCC OnLine P & H 2510.
(vii) Infrastructure Leasing & Financial Page 27 of 133 Downloaded on : Fri Nov 10 21:04:42 IST 2023 NEUTRAL CITATION C/OJA/13/2019 CAV JUDGMENT DATED: 10/11/2023 undefined Services Ltd. versus BPL Ltd. reported in (2015) 3 SCC 363.
(viii) State of Karnataka versus State of T.N. reported in (2018) 4 SCC 1."
[7] As against this, Ms. P. J. Davawala, learned advocate appearing on behalf of the official liquidator has vehemently opposed the stand of the appellants and has submitted that there is no error committed by learned Single Judge in not considering the scheme. By referring to several clauses contained in the scheme, a contention is raised that no error is committed which may call for any interference. Ms. Davawala, learned advocate has submitted that it is not correct on the part of learned senior advocate for the appellants to contend that Court's intervention is ousted. In fact, on an application made by either party, the Court can even stay the winding-up process after hearing the official liquidator and herein this case, no such application for stay of winding-up was ever been made to the Court who passed an order of winding-up. As a result of this, no scheme can be considered keeping in view the proposition of law laid down in case of Meghal Homes (P) Ltd. (supra). By Page 28 of 133 Downloaded on : Fri Nov 10 21:04:42 IST 2023 NEUTRAL CITATION C/OJA/13/2019 CAV JUDGMENT DATED: 10/11/2023 undefined way of pointing out written submissions, it has been contended that the scheme has provided the cutoff date, appointed date and effective date and the said dates have already been gone long back and as such the scheme in question is deserve to be treated as stale scheme and on that count alone, the same deserves to be rejected.
[7.1] Though, it has been submitted that dues with respect to IDBI have been settled, but there is no mention about the detail circumstances how can they settled the dues with IDBI especially when the scheme was pending and by referring to pages 35 & 36 precisely Clauses (iv) & (vi), it has been submitted that purchase of shares are not permitted by virtue of effect of Section 536 of the Act once there is an order of winding-up. Clause 4.1, reflecting on page 36, in which Clause
(a) indicates about the payment made by the sponsor and they have discharged the liability of company / guarantor without any authority from anybody and as such the same would tantamount to be a fraudulent preference which is hit by Section 531(1) of the Act. The sponsor who said to have paid the amount without Page 29 of 133 Downloaded on : Fri Nov 10 21:04:42 IST 2023 NEUTRAL CITATION C/OJA/13/2019 CAV JUDGMENT DATED: 10/11/2023 undefined any order from the Court and claiming that since they have paid the amount to the creditors their scheme should be considered. [7.2] Ms. Davawala, learned advocate has further submitted by referring to page 37 that Clause (b) is an amount of SBI, which was also settled by sponsor in view of letter dated 20.06.2008 which was addressed to appellant No.1 as a guarantor of the Company, but that was an offer made by SBI and sponsor cannot take advantage of the said offer. In respect of dues relating to workmen by referring to Clause 4.3, it has been submitted that dues were determined as on 13.02.2006 and though it may be full and final settlement but no interest nor any penalty is reflecting and surprisingly, TLA waived its right to call for and attend the meeting. Opinion of other workmen was not taken in respect to the scheme and even as on date also, the other workmen have also certain grievances and it has been found by the learned Single Judge that as per the report of TLA, the payment is required to be made, but the said report is not available with TLA though the same was directed to be produced from the Registry, even the same was not available Page 30 of 133 Downloaded on : Fri Nov 10 21:04:42 IST 2023 NEUTRAL CITATION C/OJA/13/2019 CAV JUDGMENT DATED: 10/11/2023 undefined with the Registry. Accordingly, in view of this situation, the scheme without any foundation may not be accepted. In respect of the meetings, which took place of unsecured creditors, many of the unsecured creditors whose addresses since were also not available and many names were returned unserved and creditors last know address was also not available for which learned advocate for official liquidator is referring to an order passed by another learned Single Judge dated 22.08.2008. The unsecured creditors as per the scheme were required to be paid in view of SOA which was filed way back in 1988 and not entitled for any penalty interest etc. These circumstances have also raised doubts about the scheme, and as such, the learned Single Judge has rightly not accepted it. Learned Single Judge, according to Ms. Davawala, learned advocate has further rightly come to the conclusion that all the directors of sponsor i.e. No.2, RPPL, ipso facto are the directors of the company and as such in the absence of making any provisions, the intention is clearly reflecting to take away the company. By referring to other Clauses of the scheme more particularly Clause 7(viii). It has been indicated that the limitation of the scheme appears to Page 31 of 133 Downloaded on : Fri Nov 10 21:04:42 IST 2023 NEUTRAL CITATION C/OJA/13/2019 CAV JUDGMENT DATED: 10/11/2023 undefined be till 31.03.2009, which date has passed long back and there appears to be a provision is made with regard to an extension of the said date beyond the aforesaid date by the sponsor, which date has never been extended and even if it is extended, the said was not in knowledge of either official liquidator or to any other person concerned nor with the Court and as such now the said date can never been extended in the present proceeding since the Court is examining the order passed by the learned Single Judge.
[7.3] It has been further contended by referring to the affidavit of SBI that it is the only secure creditor and if the sponsor pays to SBI on behalf of the company then it does not become automatically secured creditor and the RPPL has assumed itself a secured creditor and voted in the meeting as secured creditor and as such the meeting itself is vitiated by their own action. While dealing with the pledged shares of IDBI, RPPL does not become secured creditor since Section 536 (2) of the Act no transfer can be made after commencement of winding-up the order. By submitting that RPPL was never the shareholder of Page 32 of 133 Downloaded on : Fri Nov 10 21:04:42 IST 2023 NEUTRAL CITATION C/OJA/13/2019 CAV JUDGMENT DATED: 10/11/2023 undefined the Company on the date of winding-up order which was passed on 23.08.1988. So RPPL cannot be a shareholder of the Company and their voting as a shareholder would vitiate the whole meeting and as such on account of such circumstance also, the scheme deserves to be fail. A reference was also made of an order passed by the learned Single Judge (Justice C.K.Buch) recognizing shareholding by RPPL from IDBI which is dated 25.08.2008 and as such treating RPPL as the shareholder of the company is erroneous. It has been vehemently contended by Ms. Davawala, learned advocate that when the affidavit was filed in the year 2009, the valuation of the land was shown as Rs.15 crores and at present the valuation of land by two Government Approved Valuers is placed on record on OLR 68 of 2019 and the said OLR 68 of 2019 was filed for valuation, for inviting claims from all types of creditors, workers under Section 529 of the Act. But then, an application was filed being Company Application No.44 of 2019 stating that since the appeal filed by RPPL is pending, the OL should not proceed further which was considered by the Company Court, which is reflecting on page 142.
Page 33 of 133 Downloaded on : Fri Nov 10 21:04:42 IST 2023
NEUTRAL CITATION C/OJA/13/2019 CAV JUDGMENT DATED: 10/11/2023 undefined [7.4] It has further been submitted that O.J. Appeal No.66 of 2007 which was filed with specific prayer to stay (filed by RPPL) which was rejected and the Liquidator was asked to proceed further with regard to assignment of leasehold rights and the said order was passed by Division Bench of this Court, reflecting on page 152 of the paper book compilation. The said order passed by Division Bench was challenged by one person named as Shaan Zaveri which was rejected by Hon'ble Supreme Court as not pressed by his counsel.
[7.5] Ms. Davawala, learned advocate has further submitted that the meaning of compromise by referring to Britannica Dictionary and has submitted that by virtue of Section 466 of the Act as per as the observations contained in paragraph 31 in the case of Meghal Homes (P) Ltd. (supra), even the viability report is required to be called and in the absence thereof, it is not possible to approve the scheme especially when with hard words the learned Single Judge has rejected the same and as such keeping in view the circumstances prevailing on record, the learned advocate has then made a reference to the report Page 34 of 133 Downloaded on : Fri Nov 10 21:04:42 IST 2023 NEUTRAL CITATION C/OJA/13/2019 CAV JUDGMENT DATED: 10/11/2023 undefined submitted by official liquidator on 02.05.2019 which has clearly indicated to permit the official liquidator to get the fresh valuation of the assets and properties of the company in liquidation from any two Government Approved Valuers and if this course is not been adopted, serious prejudice will cause. Ms. Davawala, learned advocate has thus submitted written submissions by narrating all these relevant circumstance and tendered the same on 03.08.2023 and has vehemently objected against the scheme.
[8] In chorus, Mr. Mitul K. Shelat, learned advocate one of the objector said to have authorized representative of workmen has pointed out few facts and thereby has submitted that as on the date of passing of an order of winding-up, the total workmen employed in the company in liquidation, were 1440 (1429+10+1). But then, the services of the workmen have been treated as having been retrenched having regard to the order of winding-up dated 23.02.1988. According to Mr. Shelat, learned advocate, the concerned auditor has not undertaken the exercise of determination of outstanding amount payable to the Page 35 of 133 Downloaded on : Fri Nov 10 21:04:42 IST 2023 NEUTRAL CITATION C/OJA/13/2019 CAV JUDGMENT DATED: 10/11/2023 undefined workmen though quantified of Rs.7,90,88,784/- since the exercise of examining claims is yet to be undertaken. In any case, in the event of the company being revived, each of the employees will be required to be treated as having been in the employment of the Company till the date of their superannuation. For that purpose, has made certain provisions, namely, Section 25(o) of the Industrial Disputes Act, Section 25(ss) and made a reference to the order dated 14.02.2001 as well as a decision reported in 1997 (2) GLR 1534. [8.1] According to Mr. Shelat, learned advocate, the provisions of the scheme which provide that all rights and claims of the workmen under any other law would stand eschewed in view of the scheme and as such the same would run contrary to the statutory mandate contained under Sections 25(o) and 25(ss) of the Industrial Disputes Act. As such, the scheme in question is not possible to be sanctioned as ex facie contrary to law. Here Mr. Shelat, learned advocate has pointed out that the department of company affairs has also opined that the scheme does not take into consideration the interest of the workmen Page 36 of 133 Downloaded on : Fri Nov 10 21:04:42 IST 2023 NEUTRAL CITATION C/OJA/13/2019 CAV JUDGMENT DATED: 10/11/2023 undefined and when that be so, the same cannot be sanctioned. [9] Mr. A. J. Yagnik, learned advocate appearing for the opponent has made a reference to the decision delivered by the learned Single Judge dated 16.06.2012 passed in Company Petition No.135 of 2005 and allied Applications and has made an attempt to object to the scheme and for that purpose, has made a reference to paragraphs 10.10 & 10.11 and by making such reference has restricted his submissions. However, has also pointed out the decision delivered by Hon'ble Apex Court which is in the case of National Textile Workers' Union and Others versus P. R. Ramakrishnan and others reported in (1983) 1 SCC 228. Paragraph 11 of the said judgment is the relevant observations which are tried to be projected before the Court.
[10] Insofar as the stand of Textile Labour Association is concerned, Mr. Prabhakar Upadyay, learned advocate has submitted a written submissions by narrating sequence of events and tried to clarify the stand. By narrating the circumstances about existence of the workmen, it has been Page 37 of 133 Downloaded on : Fri Nov 10 21:04:42 IST 2023 NEUTRAL CITATION C/OJA/13/2019 CAV JUDGMENT DATED: 10/11/2023 undefined pointed out that on 05.05.1989 when the winding-up order was passed by the Court, 1429 claimants workmen were alive and after 38 years, as per the information available with the TLA, there are hardly 300 workmen have remained alive and since the sponsor has clearly indicated about readiness to pay the dues as per the provisions contained under the Act, the TLA has given its consent to the scheme. This consent has been given in view of further fact that a statement was made before this Court that from the date of winding-up order, sponsor will pay the interest amount at the rate of 4%. Hence, the workmen of the Mill Company (in liquidation) are going to get their dues of Rs.7.91 crores as ascertained by the Chartered Accountant and in addition to it, interest at the rate of 4% amounting to Rs.11.08 crores approximately. The same appears to be fair, reasonable and in the interest of workmen at large and as such the representative of the workmen i.e. TLA has clearly taken a stand to allow the Appeal since the workmen dues are going to be taken care of. For substantiating such, Mr. Upadyay, learned advocate representing TLA has also drawn the attention to this Court in the case of Bank of Maharashtra versus Pandurang Page 38 of 133 Downloaded on : Fri Nov 10 21:04:42 IST 2023 NEUTRAL CITATION C/OJA/13/2019 CAV JUDGMENT DATED: 10/11/2023 undefined Keshav Gorwandkar and others reported in 2013 (2) G.L.H. 268 (SC) and has reiterated that TLA has no objection so long as the interest of workmen is taken care of, as indicated above. [11] Mr. D. S. Vasavada, learned advocate appearing for the opponent who earlier appeared also before the learned Single Judge has made a reference to a decision delivered by Division Bench of this Court on 15.01.2013 passed in O. J. Appeal No.106 of 2009 and has also tried to drawn the attention of the Court about official liquidator's report made in Company Application No.96 of 1999 and the observations contained in the said report precisely paragraphs 2 and 5 have been pointed out and to substantiate his stand, Mr. Vasavada, learned advocate has also made a reference to a decision dated 22.08.2008 passed in Company Application No.427 of 2008 as well as the decision in the case of Prasad Mills Kamdar Samiti versus Bhupendra Bhagwatprasad Patel reported in 2015 (0) AIJEL-HC 233111 and then has submitted that dues of the workmen should be of paramount consideration and so long as the said interest is taken care of, there may not be any resistance. Page 39 of 133 Downloaded on : Fri Nov 10 21:04:42 IST 2023
NEUTRAL CITATION C/OJA/13/2019 CAV JUDGMENT DATED: 10/11/2023 undefined [12] Mrs. Sangeeta N. Pahwa, learned advocate appearing on behalf of one of the objector, namely, Naynaben Girishchandra has vehemently opposed the stand of the appellants and she has submitted that the order does not required any interference. Mrs. Pahwa, learned advocate has pointed out that originally Girishchandra Bhagwatprasad HUF through its Karta Astik Girishchandra filed Company Application No.34 of 2013 requested to take on record the objections filed by Astik Girishchandra for and on behalf of his mother Naynaben Girishchandra who also filed objection along with Company Application No.34 of 2013 and pointed out that vide order dated 06.11.2015, the Hon'ble Court was pleased to allow the Company Application No.34 of 2013 and ordered to take the objections filed by an objector on record of Company Petition No.264 of 2008. However, Mrs. Pahwa, learned advocate has pointed out candidly that said order dated 06.11.2015 passed by the learned Company Judge was challenged by the appellants by way of O.J. Appeal No.53 of 2015 and on 18.01.2015, the Hon'ble Court passed an order by observing in paragraph 19 that there is no limitation on the learned Company Judge from Page 40 of 133 Downloaded on : Fri Nov 10 21:04:42 IST 2023 NEUTRAL CITATION C/OJA/13/2019 CAV JUDGMENT DATED: 10/11/2023 undefined examining the objections and even suo moto objections can be taken into account by the learned Company Judge. However, this Court i.e. predecessor held that objector has no right to maintain the application in question and as such insisted to be joined as party in the proceedings. The order passed in O. J. Appeal No.53 of 2015 was challenged by the appellant by filing SLP No.3508 of 2016 before the Hon'ble Apex Court, which was however dismissed by the Hon'ble Supreme Court vide order dated 12.02.2016. Simultaneously, has also pointed out that the said disposal of the proceedings in the Hon'ble Apex Court will not debar Naynaben from objecting to the scheme since she having a shareholding to the extent of 5 shares in the Company. [12.1] By giving chronology of events, it has been emphatically submitted that the objector Naynaben has a very much right to object the scheme and to be heard on objections not only of her but also of Astikbhai. Several objections have been filed by the objector as pointed out by Mrs. Pahwa, learned advocate and it has been stated that first objection was filed on 05.02.2013, pages 648 to 660, volume-IV and second objections Page 41 of 133 Downloaded on : Fri Nov 10 21:04:42 IST 2023 NEUTRAL CITATION C/OJA/13/2019 CAV JUDGMENT DATED: 10/11/2023 undefined was filed on 07.09.2015, pages 804 to 821, volume-V whereas third objection was tendered on 09.03.2016, page 1320, volume- VI after the order passed by the Division Bench dated 06.11.2015 and as such, Naynaben deserves to be heard on her objections and requested the Court to consider. Even in present Appeal also, the said Naynaben has filed objections, which are reflecting on record. According to Mrs. Pahwa, learned advocate, by virtue of observations contained and decisions delivered by Hon'ble Apex Court in case of Meghal Homes (P) Ltd. (supra), the present objector has got right to object the present Appeal and as such has requested to consider her objections before passing final order. It has been submitted merely because the learned advocate of the objector did not remain present, it cannot be said that she has waived her right of objecting to the scheme and as such a contention is raised that her objection deserves consideration. [12.2] Mrs. Pahwa, learned advocate has further submitted that consideration of the scheme by the Court would run contrary to the order dated 17.10.2008 passed by the Company Page 42 of 133 Downloaded on : Fri Nov 10 21:04:42 IST 2023 NEUTRAL CITATION C/OJA/13/2019 CAV JUDGMENT DATED: 10/11/2023 undefined Court in MCA No.96 of 2007 and to substantiate that contention, a reference is made to page 60 of Appeal, which relates to an order dated 17.10.2008. According to Mrs. Pahwa, learned advocate, the Court directed the Official Liquidator to publish the advertisement for sale of the assets of the Company in liquidation whereas the learned advocate representing the sponsorer submitted that the said order i.e. order passed in MCA No.96 of 2007 dated 17.10.2008 may not come in the way of sponsorer's scheme being considered. According to Mrs. Pahwa, learned advocate, the land in question is the only asset available with the Company which can yield adequate amount which may benefit for disbursement of the claims of the workers, secured creditors, statutory creditors and unsecured creditors. As such, keeping in view the overall material, a request is made not to consider the scheme as the same would run counter the order passed in MCA No.96 of 2007. It has been further contended that before liquidation of the company, the company in question was declared as a Sick Industrial Company and statutory authority could not revive the company despite all efforts having been made and even Government at a Page 43 of 133 Downloaded on : Fri Nov 10 21:04:42 IST 2023 NEUTRAL CITATION C/OJA/13/2019 CAV JUDGMENT DATED: 10/11/2023 undefined time has also aided for revival and as such, it was very relevant for the learned Company Judge to consider whether the scheme provides for revival or not. It has been submitted that when the statutory authorities have also not been able to revive the company, it was obligatory on the part of sponsorer to find out the possibility of revival of the company by obtaining the viability report from the competent authority. Hence, when the revival of the company is not possible at all, the proposed scheme in absence of the viability report is not bona fide and as such the same may not be accepted.
[12.3] By referring to the written submissions, it has been submitted that before sanctioning the scheme proposed under Section 391 of the Act, the relevant factors deserve consideration and for that purpose, what are the factors which would waive Company Judge. A reference is made to a decision delivered by Hon'ble Apex Court reported in 2007 (7) SCC 753 (paragraphs 35, 44 to 47, 49 to 52) and such by referring to these observations when the scheme is proposed during the winding-up proceedings, it is the duty of the Court to find out Page 44 of 133 Downloaded on : Fri Nov 10 21:04:42 IST 2023 NEUTRAL CITATION C/OJA/13/2019 CAV JUDGMENT DATED: 10/11/2023 undefined whether the liquidation was liable to be stayed permanently or not and for that purpose, what factors to be considered is enumerated in Clause D of the written submissions. It has been further contended that the Learned Single Judge has rightly observed in paragraph 44 of the judgment that the Company in Liquidation is not possible to be revived since the properties except land belonging to Company in Liquidation has already been disposed of and as such the scheme proposed is not a scheme for revival of the Company in any case. The only available asset left out is the land, and Clause 5 of the proposed scheme does not provide any specific proposal as to how and in what manner the sponsorer proposed to revive the Company in the land of the Company. After observing and considering every circumstance which is reflecting on record, the learned Company Judge has rightly observed, according to Mrs. Pahwa, learned advocate, in paragraphs 25 to 29 of the judgment that proposed scheme is not bona fide and what is put forward is a ruse to dispose of the assets of the company in liquidation and there is no contrary material or assertion produced by the appellants to contend otherwise, namely, the scheme is not a Page 45 of 133 Downloaded on : Fri Nov 10 21:04:42 IST 2023 NEUTRAL CITATION C/OJA/13/2019 CAV JUDGMENT DATED: 10/11/2023 undefined ruse to dispose of the assets of the Company in Liquidation. Accordingly, keeping in view of the observations made by learned Company Judge, present Appeal may not be entertained and deserves to be dismissed.
[13] No other submissions have been made by learned advocates appearing for the respective sides. [14] In rejoinder to these stands taken by the objectors, Mr. Mihir Joshi, learned senior advocate appearing with Mr. A. S. Vakil and Mr. Sandip Singhi, learned advocates for the appellants has pointed out that there is no unfairness in proposed scheme, there is no immorality much less a commercial immorality and the same is not in conflict with any public policy and the proposed scheme is reflecting the commercial wisdom of the appellants and as such by bringing certain decisions on record, Mr. Joshi, learned senior advocate has submitted that only aspect which is to be looked into by the Court is whether scheme is fair and equitable and it is not for the Court to judge the commercial wisdom contained in the scheme and this is more so in view of the fact that the Court Page 46 of 133 Downloaded on : Fri Nov 10 21:04:42 IST 2023 NEUTRAL CITATION C/OJA/13/2019 CAV JUDGMENT DATED: 10/11/2023 undefined does not in that sense usurp the business, discretion of the creditors and the members of the Company and therefore by citing series of decisions as indicated above, Mr. Joshi, learned senior advocate has submitted that the stand taken by the Company does not deserve to be considered. [14.1] Subsequently, Mr. Joshi, learned senior advocate has also made a series of circumstances to point out and contend that the observations and the ratio laid down by the Hon'ble Apex Court in case of Meghal Homes (P) Ltd. (supra) is not applicable in view of peculiar background of facts on hand and thereafter has categorically submitted that the findings arrived at by the learned Company Judge are not in consonance with the settled proposition of law. In fact, according to Mr. Joshi, learned senior advocate, there is no limitation period prescribed for filing a scheme for revival of the Company which is wound- up nor there any provisions of law which mandate filing of scheme proceedings within a certain period from the date of winding-up order. Before filing of the scheme by the appellants, there were also certain uncertainties in respect of the leasehold Page 47 of 133 Downloaded on : Fri Nov 10 21:04:42 IST 2023 NEUTRAL CITATION C/OJA/13/2019 CAV JUDGMENT DATED: 10/11/2023 undefined land as the lessors had already initiated the proceedings claiming the leasehold land from the Company. As indicated above, the observations made by the learned Single Judge are based on mere inferences and the same are not supported by any cogent material. Mr. Joshi, learned senior advocate has submitted chronologically how the stand of official liquidator is not to be taken into consideration in respect of IDBI as well as SBIs dues clearance. It has been submitted that in respect of contention raised by Naynaben having merely a meager shareholding of five shares, said Naynaben has no locus standi to object the scheme before Appellate Court and this is in view of the fact that pursuant to receipt of the notice and explanatory statement, at a relevant point of time, Naynaben attended the Court convened meeting, held on 25.09.2008, in respect of five equity shares held by her and during the said Court convened meeting, she approved the scheme and not objected and surprisingly after a lapse of about three years, she filed an application objecting to the scheme. The learned Single Judge entertained the application submitted by her, but the same by detailed order, the Division Bench of this Court was pleased to Page 48 of 133 Downloaded on : Fri Nov 10 21:04:42 IST 2023 NEUTRAL CITATION C/OJA/13/2019 CAV JUDGMENT DATED: 10/11/2023 undefined set aside the said order of learned Single Judge and while disposing of the same, the Division Bench had observed that there is no limitation on the part of Company Judge from examining objections and taking into account such objections even suo moto. Subsequently, the Hon'ble Apex Court dismissed SLP preferred by Aastik and Naynaben vide order dated 20.03.2018 and only observation which was made was that this disposal of SLP will not debar Naynaben from objecting to the scheme. It has been submitted By Mr. Joshi, learned senior advocate that in the months of February / March, 2019, the learned Single Judge heard the petition almost after 11 months from the order of Hon'ble Apex Court and before the learned Single Judge, said Naynaben failed to appear and did not raise any objections which otherwise required by virtue of Rule 34 read with Form No.9 of the Companies (Court) Rules, 1959 and after passing of the impugned judgment dated 12.03.2019, the appellants preferred an appeal which came to be admitted by the Division Bench on 19.12.2019. Till that point of time, no leave was sought even from the Division Bench of this Court to appear and object to the scheme by said Naynaben Page 49 of 133 Downloaded on : Fri Nov 10 21:04:42 IST 2023 NEUTRAL CITATION C/OJA/13/2019 CAV JUDGMENT DATED: 10/11/2023 undefined and when the hearing of the appeal commenced on 29.03.2023, once again, for a period of 3 years, no steps were taken by Naynaben to seek leave of the Division Bench of the Court to appear and object to the scheme. Even at the time when Division Bench heard this Appeal, no application was filed by Naynaben seeking leave to appear and object to the scheme. Further, according to Mr. Joshi, learned senior advocate, no reasons for not appearing before the learned Single Judge though permitted by Hon'ble Apex Court or the delay to seek leave, no circumstances are forthcoming and further most material circumstances that Naynaben had voted in favour of the scheme at a relevant point of time, as indicated above, and now under which valid circumstance, the stand is to be changed is also not forthcoming. Even at present also, when the appeal is being heard, no reasons or no explanations were provided hence, considering this series of circumstances, according to Mr. Joshi, learned senior advocate, Naynaben has stated to be one of the main objector, has no locus standi to appear and object to the scheme at an appellate stage before the Division Bench and for this purpose, learned senior advocate has made a Page 50 of 133 Downloaded on : Fri Nov 10 21:04:42 IST 2023 NEUTRAL CITATION C/OJA/13/2019 CAV JUDGMENT DATED: 10/11/2023 undefined reference to the decision in case of Securities Insurance Company reported in (1894) 2 Ch. 410 as well as in case of Hindustan Development Corporation Limited and Ors. versus Shaw Wallace and Co. Ltd. reported in MANU/WB/0706/1999 mentioned in the written submission. Hence, the objections even if raised deserves to be not considered.
[14.2] Subsequently, against the order passed by the learned Single Judge the contentions have been reiterated and why the claim of the individual workmen cannot be considered is narrated in the contentions and further has submitted that the workmen union which has raised and issued has no locus standi to appear in the present Appeal and this is more so in view of the fact that while passing the impugned order by the learned Single Judge, it was held that Union cannot be allowed to raise the objections against the scheme for the said 521 workmen for whom Samiti had earlier filed application and rejected by the Court not only on the ground that they were not being represented through the representative union, but also on Page 51 of 133 Downloaded on : Fri Nov 10 21:04:42 IST 2023 NEUTRAL CITATION C/OJA/13/2019 CAV JUDGMENT DATED: 10/11/2023 undefined the ground of delay. It was further held by the learned Single Judge that once in this very proceeding of the petition, the Court rejected the application made on behalf of the same 521 workmen refusing to consider their objections through the above Samiti, the same workmen, now coming through the Union, could not be heard on their objections. As such, keeping in view, the observations made by learned Single Judge also, the stand taken by the Union is not possible to be accepted more particularly when the Union has not challenged the impugned judgment by filing any Appeal. At this stage, Mr. Joshi, learned senior advocate has also clarified that reliance placed by the Union on the provisions of Order 41 Rule 33 of the Code of Civil Procedure, 1908 is completely misplaced since the said provisions apply to the parties or respondent to the proceeding and here in the instant case, neither Union was a party to the proceedings nor held to be necessary of proper party. Thus, Union would have no right to raise any objections to the scheme in the Appeal preferred by the appellants and it has further been submitted that the stand of the Union does not deserve to be considered especially when the appellants were undertaken Page 52 of 133 Downloaded on : Fri Nov 10 21:04:42 IST 2023 NEUTRAL CITATION C/OJA/13/2019 CAV JUDGMENT DATED: 10/11/2023 undefined before the Court to take care of the interest of workmen when the scheme is approved and when that be so, there is hardly any reason for Union to raise any grievance. Hence, by narrating all submissions, as contained in written submissions filed, Mr. Joshi, learned senior advocate has requested to allow the Appeal by setting aside the order passed by the learned Single Judge. It has been emphatically submitted that certain harsh observations which have been made by the learned Single Judge that an attempt is made to ruse the property of the company are thoroughly uncalled for in view of the specific clauses contained in the proposed scheme. Hence, he has requested to set aside the impugned order and allow the present Appeal. [15] Having heard the learned advocates appearing for the respective parties and having gone through the contentions and material on record, following circumstances are not possible to be ignored by the Court while coming to ultimate conclusion on the order under challenged.
[16] Before dealing with the finding of the learned company Page 53 of 133 Downloaded on : Fri Nov 10 21:04:42 IST 2023 NEUTRAL CITATION C/OJA/13/2019 CAV JUDGMENT DATED: 10/11/2023 undefined Judge, proposition of law in the present controversy deserves to be considered. In respect of role of the Court in reviewing the scheme proceedings, the Hon'ble Apex Court has propounded peripheral broad limits to exercise judicial review. In case of Miheer H. Mafatlal (supra), the Hon'ble Apex Court has propounded broadly that Court has to consider the pros and cons of the scheme with a view to find out whether the scheme is fair, just and reasonable and is not contrary to any provisions of law and violate any public policy. The Court has to consider the commercial wisdom of the parties to the scheme who have taken an informed decision about the usefulness and propriety of the scheme and the Court will not act as an appeal or sit over the decision of the parties. Since the Court has neither the expertise nor the jurisdiction to delve deep into the commercial wisdom exercised by the creditors and members and as such Company Court's jurisdiction 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. The relevant abstract contained in paragraphs 28 and 29, the Court Page 54 of 133 Downloaded on : Fri Nov 10 21:04:42 IST 2023 NEUTRAL CITATION C/OJA/13/2019 CAV JUDGMENT DATED: 10/11/2023 undefined would like to quote hereunder:-
"28. The relevant provisions of the Companies Act, 1956 are found in Chapter V of Part VI dealing with 'Arbitration, Compromises, Arrangements and Reconstructions'. In the present proceedings we will be concerned with the Sections 391 and 393 of the Act. The relevant provisions thereof read as under :
"391.(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 Court may, on the application of the Company or of any creditor or member of the company, or in the case of to company which is being wound up, of the liquidator, order a meeting of creditors or class of creditors, or of the members or class of members, held and conducted in such manner as the Court directs.
(2) If a majority in number representing three-fourths in value of the creditors, or class of creditors, or members, or class of members, as the case may be, 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 Court, 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 Court unless the Court is satisfied that the company or any other person by whom an application has been made under sub-section (1) has disclosed to the Court, by affidavit or otherwise, all material facts relating to the company, such as the latest financial position of the company, the latest auditor's report on the accounts of the company, the pendency of Page 55 of 133 Downloaded on : Fri Nov 10 21:04:42 IST 2023 NEUTRAL CITATION C/OJA/13/2019 CAV JUDGMENT DATED: 10/11/2023 undefined any investigation proceedings in relation to the company under sections 235 to 251, and the like.
393.(1) Where a meeting of creditors or any class of creditors, or of members or any class of members, is called under section 391, -
(a) with every notice calling the meeting which is sent to a creditor or member, there shall be sent also a statement setting forth the terms of the compromise or arrangement and explaining its effect : and in particular, stating any material interests of the directors, managing director, managing agent, secretaries and treasurers or manager of the company, whether in their capacity as such or as members or creditors of the company or otherwise, and the effect on those interests, of the compromise or arrangement, if, and in so far as, it is different from the effect on the like interests of other persons; and
(b) in every notice calling the meeting which is given by advertisement, there shall be included either such a statement as aforesaid or a notification of the place at which and the manner in which creditors or members entitled to attend the meeting may obtain copies of such a statements aforesaid."
The aforesaid provisions of the Act show that compromise or arrangement can be proposed between a company and its creditors or any class of them or between a company and its members or any class of them. Such a compromise would also take in its sweep any scheme of amalgamation/ merger or one company with another. When such a scheme is put forward by a company for the sanction of the Court in the first instance the Court has to direct holding of meetings of creditors or class of creditors or members or class of members who are concerned with such a scheme and once the majority in number representing three-fourths in value of creditors or class of creditors or members or class of members, as the case may be, present or voting either in person or by proxy at such a meeting accord their approval to any compromise or arrangement thus put to vote, and once binding to all creditors or class of creditors or members or class of members, as the case may be, which would also necessarily mean that even to dissenting creditors or class of creditors or dissenting members or class of members such sanctioned scheme even though approved by a majority of the concerned Page 56 of 133 Downloaded on : Fri Nov 10 21:04:42 IST 2023 NEUTRAL CITATION C/OJA/13/2019 CAV JUDGMENT DATED: 10/11/2023 undefined creditors or members the Court has to be satisfied that the company or any other person moving such an application for sanction under sub-Section (2) of Section 391 has disclosed all the relevant matters mentioned in the provision to sub-section (2) of that Section. So far as the meetings of the creditors or members, or their respective classes for whom the Scheme is proposed are concerned, it is enjoined by Section 391(1) (a) that the requisite information as contemplated by the said provision is also required to be placed for consideration of the concerned voters so that the parties concerned before whom the scheme is placed for voting can take an informed and objective decision whether to vote for the scheme or against it. 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 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 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 as rubber stamp and must almost automatically put its seal of approval on such a scheme. t 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 its sanction. It is, of course, true that so far as the Company Court is concerned as per the statutory 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 Page 57 of 133 Downloaded on : Fri Nov 10 21:04:42 IST 2023 NEUTRAL CITATION C/OJA/13/2019 CAV JUDGMENT DATED: 10/11/2023 undefined remain binding to a dissenting minority of creditors or members as the case may be, even though they have not consented to such scheme and to that extent absence of their consent will have to effect 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.
29. However 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 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 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 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 supervisory jurisdiction of the Company Court can also be called out from the provisions of Section 392 of the Act which reads as under :
"392, (1) Where a High Court makes an order under section 391 sanctioning a compromise or an arrangement in respect of a company, it -Page 58 of 133 Downloaded on : Fri Nov 10 21:04:42 IST 2023
NEUTRAL CITATION C/OJA/13/2019 CAV JUDGMENT DATED: 10/11/2023 undefined
(a) shall have power to supervise the carrying out of the compromise or arrangement ; and
(b) may, at the time of making such order or at any time thereafter, give such directions in regard to any matter or make such modifications in the compromise or arrangement as it may consider necessary for the proper working or the compromise or arrangement.
(2) If the Court aforesaid is satisfied that a compromise or arrangement sanctioned under section 391 cannot be worked satisfactorily with or without modifications, it may, either on its own motion or on the application of any person interested in the affairs of the company, and such an order shall be deemed to be an order under section 433 of this Act.
(3) The provisions of this shall, so far as may be, also apply to a company in respect of which an order has been made before the commencement of this Act under section 153 of the Indian Companies Act, 1913 (7 of 1913), sanctioning a compromise or an arrangement."
Of course this Section deals with post-sanction supervision. But the said provision itself clearly earmarks the field in which the sanction of the Court operates. It is obvious that the supervisor cannot ever be treated as the author or a policy maker. Consequently the propriety and the merits of the compromise or arrangement have to be judged by the compromise or arrangement have to be judged by the parties who as sui juris with their open eyes and fully informed about the pros and cons of the Scheme arrive at their own reasoned judgment and agree to be bound by such compromise or arrangement. The Court cannot, therefore, undertake the exercise of scrutinising the scheme placed for its sanction with a view to finding out whether a better scheme could have been adopted by the parties. This exercise remains only for the parties and is in the realm of commercial democracy permeating the activities of the concerned creditors and members of the company who in their best commercial economic interest by majority agree to give green signal to such a compromise or arrangement. The aforesaid statutory scheme which is clearly discernible from the relevant provisions of the Act, as seen above, has been subjected to a series of decisions of different High Courts and this Court as well as by the Courts in England which had also Page 59 of 133 Downloaded on : Fri Nov 10 21:04:42 IST 2023 NEUTRAL CITATION C/OJA/13/2019 CAV JUDGMENT DATED: 10/11/2023 undefined occasion to consider schemes under pari material English Company Law. We will briefly refer to the relevant decisions on the point. But before we do so we may also usefully refer to the observations found in the oft-quoted passage in Bucklay on the Companies Act 14th Edition. They are as under :
"In exercising its power of sanction the Court will see, first that the provisions of the statute have been complied with, second, that the class was fairly represented by those who attended the meeting and that he statutory majority are acting bona fide and are not coercing the minority in order to promote interest adverse to those of the class whom they purposed to represent, and thirdly, that the arrangement is such as intelligent and honest man, a member of the class concerned and acting in respect of his interest, might reasonably approve.
The court does not sit merely to see that the majority are acting bona fide and thereupon to register the decision of the meeting, but at the same time, the court will be slow to differ from the meeting, unless either the class has not been properly consulted, or the meeting has not considered the matter with a view to the interest of the class which is empowered to bind, or some blot is found in the Scheme."
In the case of Re. Alabama, New Orleans Texas and Pacific Junction Railway Company reported in 1891 (1) Chancery Division 213 the relevant observations regarding the power and jurisdiction of the Company Court which is called upon to sanction a scheme of arrangement or compromise between the company and its creditors or shareholders were made by Lindley, L.J. as under :
"What the court has to do is to see, first of all, that the provisions of that stature have been complied with; and, secondly, that the minority has been acting bona fide. The court also has to see that the minority is not being overdone by a majority having interests of its own clashing with those of the minority whom they seek to coerce. Further than that, the Court has to look at the scheme and see whether it is one as to which persons acting honestly, and viewing scheme laid before them in the interests of those whom they represent, take a view which can reasonably be taken by businessman. The court must look at the scheme, and see whether the Act has been complied with, whether the Act has been complied with, whether the Page 60 of 133 Downloaded on : Fri Nov 10 21:04:42 IST 2023 NEUTRAL CITATION C/OJA/13/2019 CAV JUDGMENT DATED: 10/11/2023 undefined majority are acting bona fide, and whether they are coercing the minority in order to promote interests adverse to those of the class whom they purport to represent; and then see whether the scheme is a reasonable on or whether there is any reasonable objection to it, or such an objection to it as that any reasonable man might say that he could not approve it."
To the Similar effect were the observations of Fry, L.J., which read as under:
"The next enquiry is Under what circumstances is the court to sanction a resolution which has been passed approving of a companies or arrangement ? I shall not attempt to define what elements my enter into the consideration of the Court beyond this, that I do not doubt for a moment that the Court is bound to ascertain that all the conditions required by the statute have been complied with; it is bound to be satisfied that the proportion was made in good faith; and, further, it must be so far fair ad reasonable, as that an intelligent and honest man, who is a member of that class, and acting alone in respect of his interest as such a member, might approve of it. What other circumstances the court may take into consideration I will not attempt to forecast."
In Anglo-continental Supply Co. Ltd. Re. (1992) 2 Ch. 723, Asthury, J., a century later reiterated the very same propositions as under :
"Before giving its sanction to a scheme of arrangement the court will see firstly that the provisions of the statute have been complied with; secondly that the class was fairly represented by those who attended the meeting and that the statutory majority are acting bona fide and are not coercing the minority in order of the class whom they purport to represent; and, thirdly, that the arrangement is such as a man of business would reasonably approve."
The learned Single Judge of the Calcutta High Court in the case of Re. Mankam Investments Ltd. and others (1995) 4 Comp LJ 330 (Cal.) relying on a catena of decisions of the English Courts and Indian High Courts observed as under
on the power and jurisdiction of the company Court which is called upon to sanction a scheme of merger and amalgamation of companies.
"It is a matter for the shareholders to consider commercially whether amalgamation or merge is beneficial Page 61 of 133 Downloaded on : Fri Nov 10 21:04:42 IST 2023 NEUTRAL CITATION C/OJA/13/2019 CAV JUDGMENT DATED: 10/11/2023 undefined or not. The court is really not concerned with the commercial decision of the shareholders until and unless the court feels that proposed merger is manifestly unfair or is being proposed unfairly and/or to defraud the other shareholders. Whether the merged companies will be ultimately benefitted or of expenses is a matter for the shareholders to consider. If three there will be some economies in the matter of expenses is a matter for the shareholders to consider, certainly, there will be some economies in the matter of maintaining accounts, filing of returns and various other matters. However, the court is really not concerned with the exact details of the 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."
We may also in this connection profitably refer to the judgment of this Court in the case of Hindustan Lever Employees' Union v. Hindustan Lever Ltd. and others 1995 Supp. (1) SCC 499 wherein a Bench of three learned judges speaking through Sen, J. on behalf of himself and Venkatachaliah, CJ., and with which decision Sahai, J., concurred Sahai, J., in his concurring judgment in the aforesaid case has made the following pertinent observations in this connection in paras 3 and 6 of the Report :
"But what was lost sight of was that the jurisdiction of the Court in sanctioning a claim of merger is not to ascertain with mathematical accuracy if the determination satisfied the arithmetical test. A company court does not exercise an appellate jurisdiction * * * Section 394 casts an obligation on the court to be satisfied that the scheme for amalgamation or merger was not contrary to public interest. The basic principle of such satisfaction is none other than the broad and general principles inherent in any compromise or settlement entered between parties that it should not be unfair or contrary to public policy or unconscionable. In amalgamation of companies, the courts have evolved, the principle "prudent business management test" or that the scheme should not be a device to evade law. But when the court is concerned with a scheme of merger with a Page 62 of 133 Downloaded on : Fri Nov 10 21:04:42 IST 2023 NEUTRAL CITATION C/OJA/13/2019 CAV JUDGMENT DATED: 10/11/2023 undefined subsidiary of foreign company then test is not only whether the scheme shall result in maximising profits of the shareholders or whether the interest of employees was protected but it has to ensure the merger shall not result in impeding promotion of industry or shall not result in impeding promotion of industry or shall obstruct growth of national economy. Liberalised economic policy is to achieve this goal. The merger, therefore, should not be contrary to this objective. Reliance on English decisions Hoare & Co. Ltd. Re 1933 All ER Rep 105, Ch. D and Bugle Press Ltd. Re. 1961 Ch 270 that the power of the court is to be satisfied have complied with or that the classes were fully represented and the arrangement was such as man of business would reasonably approve between two private companies may be correct and may normally be adhered to but when the merger is with a subsidiary of a foreign company then economic interest of the country may have to be given precedence. The jurisdiction of the court in this regard is comprehensive."
Sen, J. Speaking for himself and Venkatachaliah, CJ., also towed the line indicated by Sahai, J., about the jurisdiction of the Company Court while sanctioning the Scheme and made the following pertinent observations in paragraph 84 at page 528 of the Report :
"An argument was also made that as a result of the amalgamation, a large share of the market will be captured by HLL. But there s nothing unlawful or illegal about this. The Court will decline to sanction a scheme of merger, if any tax fraud or any other illegality is involved. But that is not the case here. A company may, on its own, grow up to capture a large share of the market. But unless it is shown that there is some illegality or fraud involved in the scheme, the Court cannot decline to sanction a scheme of amalgamation. It has to be borne in mind that this proposal of amalgamation arose out of a sharp decline in the business of TOMCO. Dr Dhavan has argued that TOMCO is not yet a sick company. That may be right, but TOMCO at this rate will become a sick Company, unless something can be done to improve its performance. In the last two years, it has sold its investments and other properties. If this proposal of amalgamation is not sanctioned, the consequence for TOMCO may be very serious. The shareholders, the employees the creditors will all suffer. The argument that the Company has large cotton mills and jute mills in India have become sick and are on Page 63 of 133 Downloaded on : Fri Nov 10 21:04:42 IST 2023 NEUTRAL CITATION C/OJA/13/2019 CAV JUDGMENT DATED: 10/11/2023 undefined the verge of liquidation, even though they have large assets. The Scheme has been sanctioned almost unanimously by the shareholders, unsecured creditors and preference shareholders of both the Companies. There must exist very strong reasons for withholding of sanction may turn out to be disastrous for 60,000 shareholders of TOMCO and also a large number of its employees.
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 meeting 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 fair to the class as whole so as to legitimately blind even the dissenting members of that class.
4. That all the 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).
5. That all the requisite material contemplated by the provision of 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 of to 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 Page 64 of 133 Downloaded on : Fri Nov 10 21:04:42 IST 2023 NEUTRAL CITATION C/OJA/13/2019 CAV JUDGMENT DATED: 10/11/2023 undefined creditors as the case may be, were acting bona fide and in good faith and were not coercing the minority in order to promote any interest adverse to that of the latter comprising of the same class whom they purported to represent.
8. That the scheme as a whole is also found to be just, fair and reasonable from the point of view of prudent men of business taking a commercial decision beneficial to the class represented by them for whom the scheme is meant.
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 with their open eyes 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.
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.
[17] Yet another decision in case of Meghal Homes (P) Ltd. (supra), it has been propounded by the Hon'ble Apex Court that there is no incongruity in looking into aspect of public interest, commercial morality and bona fide intention to revive a Company while considering whether the scheme should be accepted or not.
[18] So far as scheme is concerned, the Court has to see Page 65 of 133 Downloaded on : Fri Nov 10 21:04:42 IST 2023 NEUTRAL CITATION C/OJA/13/2019 CAV JUDGMENT DATED: 10/11/2023 undefined apparently that unless there is apparent illegality, unfairness, unreasonableness where it is essential to pierce the veil of corporate strategies. Otherwise, it is difficult to have judicial review of this aspect of globalization and utility of material sources by the businessman or experts in the field. Business strategy is not the Court's domain and it is difficult for the Court to express their opinion on such matters. Business adjustments or arrangements cannot be decided or thrusted or imposed by the Court especially when such arrangement or adjustment or such scheme is within the framework of the law. This proposition is well supported by the decision delivered by the Bombay High Court in case of Larsen and Toubro Ltd. (supra), since this being a relevant proposition, the relevant abstract contained in paragraphs 29, 30, 32, 40, 41, 86 and 100, the Court would like to quote hereunder:-
"29. Mr. Goolam Vahanvati, Advocate General, in addition to the above principle, further relied on Sussex Brick Co. Ltd., In re, [1960] 30 Comp Cas 536; [1961] 1 Ch D 289 and supported the scheme on the foundation that the onus of proof lies upon the objectors to show that such scheme is unfair. He referred to the following paragraphs (pages 538, 539 and 540):
"That being the undoubted law, I think that the Page 66 of 133 Downloaded on : Fri Nov 10 21:04:42 IST 2023 NEUTRAL CITATION C/OJA/13/2019 CAV JUDGMENT DATED: 10/11/2023 undefined present scheme and present offer are undoubtedly open to criticism, and that a clever business man, a man well versed in company law and matters which influence dealings on the stock exchange, could find a good many loopholes in it. That amounts to this: the scheme is open to criticism; but does that go far enough? That is the difficulty in the present case. It has not been suggested on behalf of the applicant that there has been any bad faith or any intentional misleading of the applicant, but although the scheme is open to a good deal of criticism, which might be enlarged on at great length in one or more circulars, what exactly the effect on the mind of the shareholders would have been I do not pause to inquire. That the scheme is open to criticism I have no doubt, but can it be said therefore to be unfair? I think it rather difficult to predicate unfairness in any case in which there has been perfect good faith on the side of the person who is alleged to have been unfair. I think that the applicant is faced with the very difficult task of discharging an onus which is undoubtedly the heavy one of showing that he, being the only man in regiment out of step, is the only man whose views ought to prevail. That is the difficulty he is faced with in the present case.
I agree that certain criticisms set out in the applicant's affidavit show that a good case could be made out for the formulation of a better scheme, of a fairer scheme, of one which would have been more attractive to the shareholders if they could have understood the implications of the criticisms. I have no doubt at all that a better scheme might have been evolved, but is that enough? Is it necessary to establish the validity of such an offer as put forward in the present case? Is there any point in the scheme on which a better view might have prevailed, and rather more generous treatment might have been offered to persons whose shares are sought to be expropriated? A better and fairer offer might have been made, possibly, but I do not think that because a scheme is not 100 per cent, fair or right there is the kind of unfairness with which Maugham J. was dealing in the case to which I have referred. The mere finding of items, or details, in the scheme which are open to valid criticism, is not unfairness consistent with the spirit of that judgment.Page 67 of 133 Downloaded on : Fri Nov 10 21:04:42 IST 2023
NEUTRAL CITATION C/OJA/13/2019 CAV JUDGMENT DATED: 10/11/2023 undefined A scheme must be obviously unfair, patently unfair, unfair to the meanest intelligence. It cannot be said that no scheme can be effective to bind a dissenting shareholder unless it complies to the extent of 100 per cent, with the highest possible standards of fairness, equity and reason. After all, a man may have an offer made to him and, although he would prefer something better, would be quite prepared to accept it because it was good enough in all the circumstances. It may be that the grounds for criticising the present scheme are not grounds of such a nature as to render the whole thing unfair in the sense in which Maugham J. used the words in the case which I have cited...
Without putting my own view as to how this scheme could have been improved and made a little more favourable and a little more fair, perhaps, to the ordinary shareholders, I do not think that unfairness in the sense in which it has been used in the reported cases has been established. It must be affirmatively established that, notwithstanding the view of the majority, the scheme is unfair, and that is a different thing from saying that it must be established that the scheme is not a very fair or not a fair one; a scheme has to be shown affirmatively, patently, obviously and convincingly to be unfair."
30. The principle which he canvassed goes to the root of the present matter. The objectors failed to discharge their onus of proof of allegations of unfair, illegal or against the public policy as contemplated under the Companies Act. The scheme of the Companies Act has to be read and understood in the context in which the Companies Act and its scheme worked for the purpose and benefit of the company and its shareholders. This judgment has been referred to in Mafatlal's case, [1996] 87 Comp Cas 792 (SC) also at page 820. Those allegations were without any proof, material and documents. Those allegations were bare allegations without supporting evidence or even basic averments. Those allegations were general and are baseless and without any material.
32. Mr. Goolam Vahanvati further pointed out that in reference to Grierson, Oldham and Adams Ltd., In re, [1967] 37 Comp Cas 357 (Ch D); [1967] 1 WLR 385; [1968] Page 68 of 133 Downloaded on : Fri Nov 10 21:04:42 IST 2023 NEUTRAL CITATION C/OJA/13/2019 CAV JUDGMENT DATED: 10/11/2023 undefined 1 Ch 17, opposition by minority shareholders or individual shareholders cannot be considered against the majority of the shareholders who have accepted the scheme in question. He referred at page 391, to the following paragraph (page 363 of 37 Comp Cas):
"The third general observation which arises out of the arguments that have been put forward concerns the question whether the test of the fairness of the offer is fairness to the individual shareholder or fairness to the body of shareholders as a whole. In my judgment, the test of fairness is whether the offer is fair to the offerees as a body and not whether it is fair to a particular shareholder in the peculiar circumstances of his own case. Mr. Gurney- Champion suggested that the contrary was the true view, and he referred in support of that submission to certain remakrs made by Vaisey J. in Sussex Brick Co. Ltd., In re, [1960] 30 Comp Cas 536; [1961] 1 Ch D 289 which is reported as a note to Bugle Press Ltd., In re, [1961] 31 Comp Cas 369; [1961] 1 Ch D 270 (CA)."
40. In my view, the present scheme of arrangement is fair, just and in the interest of the public. Mere allegations of the objectors are not sufficient and what is to be seen by the court in such circumstances has been crystallized in the following words:
"The Chancery Division in Sussex Brick Co. Ltd., In re, [1960] 30 Comp Cas 536; [1961] 1 Ch D 289, while discussing the scope and the jurisdiction of the company court, has held at page 291 that (page 538):
'I think that the present scheme and the present offer are undoubtedly open to criticism, and that a clever businessman, a man well versed in company law and matters which influence dealings on the stock exchange, could find a good many loopholes in it'."
41. And further that, "That the scheme is open to criticism I have no doubt, but can it be said therefore to be unfair? I think it rather difficult to predicate unfairness in any case in which there has been perfect good faith on the side of the person who is alleged to have been unfair. I think that the applicant is faced with the very difficult task of discharging an onus which is undoubtedly the heavy one of showing that he, Page 69 of 133 Downloaded on : Fri Nov 10 21:04:42 IST 2023 NEUTRAL CITATION C/OJA/13/2019 CAV JUDGMENT DATED: 10/11/2023 undefined being the only man in the regiment out of step, is the only man whose views ought to prevail."
86. The trend which is noted, is that in such matters where shareholders have admittedly lost their case in the respective meetings as they were unable to convince the majority of shareholders and/or in spite of their objections and the majority decision have been taken against their wish, still on such frivolous and baseless grounds, they are again able to raise such objections before the court to halt and hinder the sanction of the scheme The early sanction of the scheme is the need of the hour, so that companies can proceed further and do their business, which is definitely in the interest of the public at large, specially when the companies have a global vision. Such shareholders, in my view, should be awarded with exemplary costs so that in future they would not interfere with the smooth functioning of such arrangements. This should not be deemed to suggest that the objectors have no right to point out to the court that the scheme in question is against law, illegal, unfair, unjust or contrary to public policy or interest, but such applications must be made at the appropriate time with appropriate material on record and not merely by allegations or bald statements or on vague reasons. However, unless there is specific provision made in the appropriate Court Rules about such friviolous objections, I see no reason to award any exemplary costs against such objectors. Such objections in a given case, may be bona fide or in the interest of the minority shareholders. One cannot overlook that the oppression or any action of majority shareholders if against the minority shareholders or case of oppression or coercion, has a different forum to invoke. While sanctioning the scheme of arrangement, this aspect of coercion or oppression cannot be considered in such a company petition at the instance of such objectors with no material or no justification in support of their allegations of oppression or monopolization or concentration of cement industry, as such. No other objectors/intervenors have filed any written objection or submission and not argued in person or through advocate, except the objections referred to in the judgment.
100. In this competitive market, the corporate world with exhaustive strategies is a must. Companies know how to make or arrange and adjust their business to run with the national and international markets. Third person may Page 70 of 133 Downloaded on : Fri Nov 10 21:04:42 IST 2023 NEUTRAL CITATION C/OJA/13/2019 CAV JUDGMENT DATED: 10/11/2023 undefined not be in a position to provide them business strategies and above all, companies know their respective shareholders' need, may not be bound by the views expressed by the third persons. Unless there is apparent illegality, unfairness, unreasonableness where it is essential to pierce the veil of corporate strategies. Otherwise, it is difficult to have judicial review of this aspect of globalization and utility of material sources by the businessman or experts in the field. Business strategy is not the court's domain. It is difficult for the courts to express their opinion on such matters. Business adjustments or arrangements cannot be decided or thrusted or imposed by the court specially when such arrangement or adjustment or such scheme is within the framework of the law."
[19] In addition to this, it has also been the proposition that commercial wisdom of the parties normally not to be interfered with since Court does not investigate upon the commercial merits or demerits of the scheme which is the function of those who are interest in the arrangement. To what extent the Court can enter into such arena of commercial wisdom and to what extent Court should desist from interfering is well explained in the decision in case of Ion Exchange (India) Limited (supra). the relevant abstract contained in paragraphs 19, 20 and 26, the Court would like to quote hereunder:-
"19. The exercise of discretion by the Court on an application under section 391 of the Companies Act, 1956 has been elaborately dealt with in a Judgment of a learned Single Judge, D. A. Desal, J. (as he then was) of the Gujarat Page 71 of 133 Downloaded on : Fri Nov 10 21:04:42 IST 2023 NEUTRAL CITATION C/OJA/13/2019 CAV JUDGMENT DATED: 10/11/2023 undefined High Court in the Maneckchowk and Ahmedabad Manufacturing Co. Ltd.,: The learned Single Judge emphasised that the effort of the Court is to consider whether the scheme is reasonable and while doing so, the Court will have due regard to a large majority vote and to the reason, if any, which actuated the contesting creditors in opposing the scheme. Though the scheme has to be fair and equitable, it is not for the Court to judge upon the commercial merits of the scheme. The Court does not in that sense usurp the business discretion of the creditors and members of the Company. The Court will sanction the scheme unless it was conceived, designed or calculated to cause injury to others. Similarly, if the Court comes to the conclusion that the scheme is a cloak to cover the misdeeds of the Company or is put forth with a view to shield the Directors against an investigation into their mismanagement, the scheme cannot be accepted only on the ground that it has been approved by the creditors and members.
20. The Judgment need not be burdened by a further reference to decisions emanating in the High Courts save and except to state that the decided cases emphasise that the function of the Court is to determine having regard to the general conditions, background and object of the scheme whether it is fair and reasonable as a whole. The Court does not investigate upon the commercial merits or demerits of the scheme which is the function of those who are Interested in the arangement. This view has been taken by a learned Single Judge of the Madras High Court in the case of Coimbatore Cotton Mills Ltd. v. Lakshmi Mills Co. Ltd.,. In United Bank of India Ltd. v. United India Credit and Development Company Ltd., the scope of the jurisdiction of the High Court was formulated thus, by a learned Single Judge of the Calcutta High Court :
"Further, the Court cannot speculate at this stage as to the possibility, potentiality of the amalgamated-company in future and its working. It is true that the Court is not a mere rubber-stamp but. In sound exercise of its discretionary power to sanction a scheme, must consider the scheme as a whole having regard to the general conditions, background, and object of the scheme and the present day conditions, and atmosphere in the State where the companies are going to function. Court cannot take a pedantic and strict view of each and every clause in the scheme and speculate as to its future, feasibility and possibility at this stage. It is for the collective wisdom of the shareholders who are primarily businessmen and Page 72 of 133 Downloaded on : Fri Nov 10 21:04:42 IST 2023 NEUTRAL CITATION C/OJA/13/2019 CAV JUDGMENT DATED: 10/11/2023 undefined Investors guided by the directors of a company to determine the course of business they choose."
A reference may also be made to a Judgment of a learned Single Judge of the Karnataka High Court in Shankarnarayana Hotels Put. Ltd. v. Official Liquidator, which reiterate these principles.
26. The wholly owned subsidiaries which the Transferee seeks to formally amalgamate within its fold have sustained losses. To object to the Scheme of Amalgamation, as the Intervenor has done, on the ground that there is no benefit to the transferee in merging with loss making entities is a simplistic approach to a business and economic problem. Surely, the business and commercial wisdom of those who control corporate enterprise cannot be predicated upn such simplistic assumptions. The law and those whose duty it is to interpret it must be conscious of the complexities of business and economic life. The basic assumptions which were the foundation of a closely regulated and controlled economy have altered in present day society where corporate enterprise has to gear itself up to a free form of competition and an open interface with market forces. The fortunes of corporate enterprise are liable to fluctuate with necessary cycles. Changes in economic policy and economic changes affect the fortunes of business as assumptions and conditions in which corporate enterprises function are altered. Corporate enterprise must be armed with the ability to be efficient and to meet the requirements of a rapidly evolving business reality. Corporate restructuring is one of the means that can be employed to meet the challenges and problems which confront business. The law should be slow to retard or impede the discretion of corporate enterprise to adapt itself to needs of changing times and to meet the demands of increasing competition. The law as it has evolved in the area of mergers and amalgamations has recognized the Importance of the Court not sitting as an Appellate Authority over the commercial wisdom of those who seek to restructure business. The need for this restatement is all the greater today where the interplay of competition and the forces of the market demand efficiency; cost effectiveness and high levels of productivity. Viewed in the context of this business reality, the Scheme of Amalgamation should in the present case pass muster. The holding company in the present case seeks to emerge from Page 73 of 133 Downloaded on : Fri Nov 10 21:04:42 IST 2023 NEUTRAL CITATION C/OJA/13/2019 CAV JUDGMENT DATED: 10/11/2023 undefined the economic difficulties which face its subsldiaris which have become loss making entities. The effort is to pool together human, financial and material resources and to deploy them, upon amalgamation in a manner that would enhance profitability. This is a permissible object and nothing in the proposed scheme in the present case militates against commercial morality, the public interest or a view which a reasonable body or shareholders or creditors would adopt. The transferor and the transferee companies have annexed to the Company Petitions sufficient material and financial data so as to enable the Court to determine whether the Scheme of Amalgamation is reasonable and workable. The averments contained in paragraphs 17 and 25 of the Petitions cannot be looked upon in isolation. There has been a sufficient disclosure in the present case of the terms of the scheme as well as of its effect so as to enable the Court to form a view of the matter. The Intervenor in the present case has a claim of Rs. 35 lakhs. The transferee will be in a position to meet the claim should it be adjudicated by the competent form in favour of the Intervenor."
[20] There is another principle on which the Court has to examine is the aspect of commercial morality which is also quite visible from one of the decisions delivered by Karnataka High Court in case of G.T. Swamy (supra). With a view to see that present judgment may not unnecessary overburden the gist is not incorporated hereunder, but in summarized manner if to be conveyed, it is propounded that although the consent of all the creditors has been obtained, the Court will still consider whether what they have agreed to is for the benefit of the creditors as a whole and it is rather a duty of the Court to look, Page 74 of 133 Downloaded on : Fri Nov 10 21:04:42 IST 2023 NEUTRAL CITATION C/OJA/13/2019 CAV JUDGMENT DATED: 10/11/2023 undefined not only at the interests of the creditors, but also at the conduct of the debtor.
[21] Further the role of the Court under Section 394 of the Companies Act is to satisfy that scheme for amalgamation or merger or the scheme which might have been placed for approval was whether contrary to public interest or not. The relevant observations contained in paragraphs 5, 6, 9 & 12 of a decision in case of Hindustan Lever Employees' Union (supra) deserves to be considered, as relevant and as such, the Count deems it proper to quote hereunder:-
"5. What requires, however, a thoughtful consideration is whether the company court has applied its mind to the public interest involved in the merger. In this regard tie Indian law is a departure from the English law and it enjoins a duty on the court to examine objectively and carefully if the merger was not violative of public interest. No such provision exists in the English law. What would be public interest cannot be put in a straight jacket. It is a dynamic concept which keeps on changing. It has been explained in Black's Law Dictionary as:
"something' in which the public, the community at large, has some pecuniary interest, or some interest by which their legal rights or liabilities are affected. It does not mean anything so narrow as mere curiosity, whereas the interest of the particular locality which may be affected by the letters in question, interest shared by the citizens generally in affairs of local, State or national Government."Page 75 of 133 Downloaded on : Fri Nov 10 21:04:42 IST 2023
NEUTRAL CITATION C/OJA/13/2019 CAV JUDGMENT DATED: 10/11/2023 undefined It is an expression of wide amplitude. It may have different connotation and un-derstanding when used in service law and yet a different meaning in criminal law than civil law and its shade may be entirely different in Company Law. Its perspective may change: when merger is of two Indian companies. But when it is with subsidiary of foreign company the con-sideration may be entirely different. It is not the interest of shareholders or the employees only but the interest of society which may have to be examined. And a scheme valid and good may yet be bad if it is against public interest.
6. Section 394 casts an obligation on the court to be satisfied that the scheme for amalgamation or merger was not contrary to public interest. The basic principle of such satisfaction is none other than the broad arid general principles inherent in any compromise or settlement entered be- tween parties that it should not be unfair of contrary to public policy or unconscionable. In amalgamation of companies, the courts have evolved, the principle of, 'prudent business management test' or that the scheme should not be a device to evade law. But when the court is concerned with a scheme of merger with a subsidiary of a foreign company then the test is not only whether the scheme shall result in maximising profits of the shareholders or whether the interest of employees was protected but it has to ensure that merger shall not result in impeding promotion of industry or shall obstruct growth of national economy. Liberalised economic policy is to achieve this goal. The merger, therefore, should not be contrary to this objective. Reliance on English decision for Custina Re Haare, 1933 AER Ch. 105 and Bugle Press LIC, 1961 Chancery Division 270 that the power of the court is to be satisfied only whether the provisions of the Act have been complied with or that the class or classes were fully represented and the arrangement was such as a man of business would reasonably approve between two private companies may be correct and may normally be adhered to but when the merger is with a subsidiary of a foreign company then economic interest of the country may have to be given precedence. The jurisdiction of the court in this regard is comprehensive.
9. Each of these challenges claimed to be violative of public interest have to be examined in the prevailing atmosphere which opted for liberalisation of the Page 76 of 133 Downloaded on : Fri Nov 10 21:04:42 IST 2023 NEUTRAL CITATION C/OJA/13/2019 CAV JUDGMENT DATED: 10/11/2023 undefined Government policies to promote economic growth of the country. What is remarkable is that the Legislature itself has amended Foreign Exchange Regulation Act, 1973 by Act 29 of 1993 ('FERA' for short), the Monopolies and Restrictive Trade Practices Act, 1969 and Companies Act, 1956 by Act of 58 of 1991, The amendment in MRTP Act was effected as :
"The basic philosophy behind the MRTP Act was never to inhibit industrial growth in any manner but to ensure that such growth is channelised for the public good and is not instrumental in per-petuating concentration of economic power to the common detriment. With the growing complexity of industrial structure and the need for achieving economies of scale for ensuring higher productivity and competitive advantage in the international market, the thrust of the industrial policy has shifted to controlling and regulating the monopolistic, restrictive and unfair trade practices rather than making it necessary for certain undertakings to obtain prior approval of the Central Government for expansion, establishment of new undertakings, merger, amalgamation, take over and appointment of Directors. It has been the experience of the Govern-ment that pre-entry restriction under the MRTP Act on the investment decision of the corporate sector has outlived its utility and has become a hindrance to the speedy implementation of industrial projects".
In pursuance of this objective, Sections 20 to 26 were repealed. Section 23 of it which empowered the Commission to examine the scheme of amalgamation or merger is no more on the statute book. The argument of the Petitioners that the Commission being court of primary jurisdiction the Company Court should have stayed its hands and awaited the decision of the Commission does not appear after amendment to be sound. Effect of the merger resulting in monopoly is already pending before the Commission. Therefore, no further comment is called for.
12. Even assuming that the assets are being transferred for a very meager sum but that by itself would not render the agreement bad or against public policy. Once the FERA was amended and assets of the Indian company could be transferred to foreign company then the amalgamation cannot be withheld when the shareholders Page 77 of 133 Downloaded on : Fri Nov 10 21:04:42 IST 2023 NEUTRAL CITATION C/OJA/13/2019 CAV JUDGMENT DATED: 10/11/2023 undefined themselves did not raise any objection nor was it raised by financial institutions or statutory bodies. The challenge, therefore, founded on transfer of assets at lower price cannot be upheld as violative of public interest. [22] In addition to this, it appears that much emphasis has been placed in case of Meghal Homes (P) Ltd. (supra) but the said case if to be viewed would indicate that in the said case, initially the Company Court passed an order on 01.09.1994 directing the official liquidator to issue public notice inviting offers for revival of the textile mills, namely, Shreenivas Cotton Mills Limited then one Mr. Ranganath Somani, a contributory, filed Company Application for convening of the meetings to consider a scheme for revival of the Company and in that case, clause 1.5 of the scheme proposed by Mr. Ranganath Somani, it was mentioned that the scheme does not envisage sale of any of the assets or properties of SCML and it is for the revival of the textile mill and in that factual scenario, the Company Court directed convening of the meetings. The said order of the Company Court directing convening of the meetings was also challenged in the Appeal. The Division Bench, by its order dated 04.04.1995, allowed the Appeal and set aside the order of the Company Court directing convening Page 78 of 133 Downloaded on : Fri Nov 10 21:04:42 IST 2023 NEUTRAL CITATION C/OJA/13/2019 CAV JUDGMENT DATED: 10/11/2023 undefined the meetings and simultaneously, the Division Bench gave directions to the Company Court for the purpose of reviving the Company and to restart the Mills. It is in this context, a memorandum of understanding was executed on 29.06.2003 between Somani Group and Lodha Builders Private Limited wherein Lodha Builders agreed to pay some consideration and certain built-up area to enable Lodha Builders to develop the properties of SCML and in that context, an application was submitted before Company Court for seeking direction for convening of the meeting to consider the amended scheme and under the amended scheme, what was sought for approval was development and transfer of properties. Yet another amendment to the scheme and instead exploring the possibility of revival, the intention was otherwise, and as such, Company Court rejected the amended scheme on 23.07.2004, by holding that the scheme is basically in substance for disposal of property. The said order was challenged before Appellate Court, the Appellant Court sanctioned the scheme and the said Appellant Court's order was challenged before the Hon'ble Apex Court. Hence, it is in such peculiar background of fact, the Hon'ble Page 79 of 133 Downloaded on : Fri Nov 10 21:04:42 IST 2023 NEUTRAL CITATION C/OJA/13/2019 CAV JUDGMENT DATED: 10/11/2023 undefined Apex Court held that the scheme was not intended for any revival and the same was more in the realm of disposal of the assets. This proposition, which is tried to be canvassed by the parties opposing the scheme is without considering the peculiar background of present facts on hand.
[23] The aforesaid judgment, according to Mr. Joshi, learned senior advocate, is not applicable in view of the fact that under the scheme which is proposed by the appellant, there is no disposal of assets of the Company intended and further there is no clause seeking sale or dispose of assets or starting the business at any other place except where the land of the company is situated and therefore, the scheme is not intended to dispose of the assets, namely, the land and the principle laid down in Meghal Homes (P) Ltd. (supra) is not applicable. [24] In the light of aforesaid broad proposition, laid down in catena of decisions, reverting back to the case on hand, it seems that the scheme of compromise is intended for revival of the Mills Company which was already wound-up by the Company Page 80 of 133 Downloaded on : Fri Nov 10 21:04:42 IST 2023 NEUTRAL CITATION C/OJA/13/2019 CAV JUDGMENT DATED: 10/11/2023 undefined Court vide order dated 23.08.1988 (the date of the order of winding-up referred in other proceedings / orders is dated 05.5.1989). Somewhere in the year 1998, the movable properties of the company, namely, the stock of goods, plant, machineries etc. were disposed of for an aggregate amount of Rs.131 lakhs and what was left out is the immovable property in the nature of land admeasuring 36971.25 sq. mtrs., which was stated to be reduced to some extent on account of acquisition by the Ahmedabad Municipal Corporation for road widening, but continued to be in possession of the Official Liquidator with cash in bank balance of the Company's account.
[25] The scheme of compromise, which has been submitted before the Company Court is detailed out in its entirety with relevant clauses which are narrated in paragraph 3 of the judgment and order dated 12.03.2019. But some of few clauses, which are very relevant to the issue needs to be considered and as such, we deem it proper to quote hereunder:-
"2. The scheme of compromise is for revival of Prasad Mills Ltd. (in liquidation) (to be referred as `the Company`) which, as stated by the petitioners in the petition, was Page 81 of 133 Downloaded on : Fri Nov 10 21:04:42 IST 2023 NEUTRAL CITATION C/OJA/13/2019 CAV JUDGMENT DATED: 10/11/2023 undefined ordered to be wound up by this Court on 23.8.1988 (The date of the order of winding up referred in other proceedings/orders is 05.5.1989). As stated in the petition, the movable properties of the Company namely stock of goods, plant, machineries etc. were disposed of in the year 1998 for aggregate consideration of Rs.131 lac. However, the land admeasuring about 36971.25 Sq. Mtrs., which is stated to be reduced to some extent on account of acquisition by the Ahmedabad Municipal Corporation for road widening, continued to be in possession of the Official Liquidator with cash in bank balance of the Company's account .
3. ii) 'Appointed date' means 1st August 2008 or such date that the High Court of Gujarat may direct.
iii) 'Applicant' means Mr. Bhupendra Bagwatprasad Patel, who is ex-director of the Company and guarantor for the dues of the Company to the Secured Creditors.
iv) 'Cut off date' means 23 rd August, 1988; being the date on which the statement of Affairs of the company has been drawn and the date on which the provisions liquidator was appointed by the High Court of Gujarat.
vi) (a) 'Secured Creditors' means creditors having lent money or granted credit facilities to the Company in the form of loan, deposit, guarantee or other finances or funds which is/are secured by way of a charge created over the movable and/or immovable properties and assets of the Company on account of deed of hypothecation, mortgage or deposit of title deeds, as the case may be and include the State Bank of India and/or IDBI Bank Ltd. or its respective assignee/s.
(b) 'Statutory Creditors' means those creditors of the Company as on the cut off date to whom the amount is due under the Stature including statutory rules, regulations or bye-laws.
(c) 'Workmen' means persons who were in the employment of the Company and 'Workmen's dues' means dues of the 'Workmen'; both caused to have been ascertained by the Official Liquidator, in terms of Section 529 of the Act.
vii) 'Effective Date' means the date on which the scheme comes into effect in terms of clause No 7 vii).Page 82 of 133 Downloaded on : Fri Nov 10 21:04:42 IST 2023
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xi) 'Scheme' means the proposed scheme of compromise or arrangement between the Company and its creditors, shareholders and the sponsor/s or the proposed scheme with such modification(s), if any, made as per directions of the High Court or otherwise, for reconstruction of the Company.
Xii) 'SOA' means the copy of the Statement of Affairs stating the position of assets and liabilities of the Company as on 23rd August 1988.
xiii) 'Sponsor' means Riverfront Properties Pvt. Ltd. (RPPL), a company registered under the provisions of the Companies Act, 1956, presently having its registered office at SERA, 13, Gandhibag Society, Law Garden, Ahmedabad, Pin Code380006 and/or its nominee, assignee, representative.
2. Background :
i) Prasad Mills Ltd. (in liquidation) has been registered as a company on 3rd September 1914 at Sr. No.41 with the office of the Registrar of Companies, Bombay under its erstwhile name i.e. Bechardas Spinning and Weaving Mills Ltd. Its registered office used to be at Raikhad, Ahmedabd, 380001. The Company was engaged in the business of manufacturing textiles. The operations of the Company came to standstill around January 1984 due to financial difficulties, interalia the non payment of electricity supply bill/s. The Company used to be under the protection and purview of Bombay Relief Undertakings Act (Special Provisions) Act, 1958 upto May 1986. On 23rd August 1988, pursuant to winding up petitions before the High Court of Gujarat, the Company was directed to be wound up. Properties and assets of the company came into possession of the Official Liquidator from 23rd August 1988. In the year 1998, movable properties of the company, namely, the stock of goods, plant and machinery etc. and superstructure of the building/s were put to sale by the Official Liquidator and accordingly the said assets were disposed off for the aggregate consideration of Rs.131 lacs. Thereafter the properties and assets of the company that have remained are (i) freehold and leasehold rights of land admeausring about 36971.25 Sq. mtrs., which is now reduced by the area as actually acquired by the Ahmedabad Municipal Corporation for widening of the Page 83 of 133 Downloaded on : Fri Nov 10 21:04:42 IST 2023 NEUTRAL CITATION C/OJA/13/2019 CAV JUDGMENT DATED: 10/11/2023 undefined road; (ii) unrealised investments/ dues of the company, if any and (iii) cash and bank balance with the Official Liquidator. The Company is entitled to the usage of the leasehold portion of the land on account of a lease deed dated 10.12.1916 executed between late Shri Durgaprasad Shabhuprasad Lashkari and the Company. The period of lease is for 199 years and lease rent payable per annum is about Rs.3500/-. Pursuant to the directions of the Gujarat High Court, leasehold rights in the said land have been put to sale by the Official Liquidator. Pursuant thereto the promoters of the Sponsor-RPPL have bidded in their personal capacity for the acquisition of the leasehold rights in April May 2006. the offer of the said promoters of the sponsor being the highest (RS 7.75 crores) has been recommended by the Official Liquidator vide his report no.45 of 2005 for acceptance/ confirmation by the Gujarat High Court. Simultaneously, aggrieved by the action of the Official Liquidator, few persons claiming to be the heirs/ legal representatives / successors of the late lessorShri Durgaprasad Shambhuprasad Lashkari; initiated proceedings before Gujarat High Court seeking a direction that the Official Liquidator of the Company should hand over possession of the lands to the said alleged heirs/legal representatives and also seeking an injunction restraining the Official Liquidator from selling/transferring the lands/leasehold rights of the company. The learned Single Judge of the Gujarat High Court dismissed the said proceedings of the heirs/legal representatives. Being aggrieved by the same some of the alleged heirs/legal representatives have preferred appeals before the appellate forum of the Gujarat High Court. Pending the Appelas, the appelalte forum of the Gujarat High Court has granted an interim injunction against sale of such rights.
The said appeals are heard and the judgement is awaited. On account of the interim order passed by the appellate forum of the Gujarat High Court in the appeals, the Official Liquidator's report 45/2005 is awaiting further orders.
ii) Shri Bhupendra Bhagwatprasad Patel is one of the equity shareholders and an ex-director of the Company. He ceased to be the director of the Company on its winding up. He has extended his personal guarantee for the outstanding dues of the Company to its secured creditors.
iii) Riverfront Properties Pvt.Ltd. (RPPL) - the sponsor is a company registered under the provisions of the Companies Act, 1956. Its registered office is situated at 'Sera', Page 84 of 133 Downloaded on : Fri Nov 10 21:04:42 IST 2023 NEUTRAL CITATION C/OJA/13/2019 CAV JUDGMENT DATED: 10/11/2023 undefined Gandhibag Society, Near Law Garden, Ellisbridge, Ahmedabad 380006. RPPL is promoted by Mr. Shaan Zaveri, Mr.Mischa Gorchov and Mr.Anand Shah. Promoters of RPPL are; interalia, engaged in the business of civil construction and real estate development. RPPL has the requisite resources to sponsor and support the scheme of compromise and arrangement of the Company.
iv) Dues of the Industrial Development Bank of India(IDBI), being the secured creditor the Company, has been settled and paid off by the Sponsor-RPPL. IDBI has assigned its right, title and interest in the debt due to IDBI from the Company along with its security interest in favour of the Sponsor-RPPL. IDBI has filed Company Application No.414 of 2007 before the Gujarat High Court seeking appropriate directions under the provisions of the Companies Act, 1956, thereby seeking to substitute the name of the Sponsor-RPPL in place of IDBI as the secured creditor of the Company. The said Company Application 414/2007 is pending the awaits decision of the Gujarat High Court.
v) Dues of State Bank of India has (SBI), being the other secured creditor of the Company, has been settled for Rs.2,64,14,885/- (Rupees two crores fourteen lacs eight hundred eighty five) vide its letter dated 20th June 2008 bearing No.SAMB / 08-09/ TRP. 513. The said settled amount is proposed to be paid off in terms of the scheme.
vi) Sponsor-RPPL has acquired interest in aggregate 5693 nos. of Equity Shares of the Company. Out of the said 5693 shares, 3669 Equity Shares are acquired as the assignee of the debt of the IDBI and 2024 Equity Shares are acquired as the purchaser from various Shareholders/ contributories of the Company. As the Company is in winding up, the transfer of shares is subject to the approval of the Gujarat High Court. Sponsor has approached the Official liquidator vide its letter dated 26th November 2007 and 14th July 2008 respectively, with a request to recognise the sponsor- RPPL's rights, title and interest in the said 2024 Equity shares and to effectuate the changes in the List of Contributories of the Company.
3. Basic of the Scheme The Scheme proposes the settlement and payment of dues of the following creditors of the Company: Page 85 of 133 Downloaded on : Fri Nov 10 21:04:42 IST 2023
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(i) for the secured creditors as has been agreed to between the Applicant, Sponsor and the creditor;
(ii) for the workmen, and Ahmedabad Municipal Corporation as per their respective claims stated and ascertained by the official liquidator; and
(iii) for those Creditors whose names with their respective dues have been stated in the SOA.
The Scheme also proposes the redemption of preference share capital an issue and allotment of fresh Equity Share Capital.
4.1 Secured Creditors
i) Industrial Development Bank of India (IDBI) and State Bank of India (SBI) 4.3 Workmen
i) 'Workmen's dues' as ascertained by the Official Liquidator and reported to the High Court of Gujarat vide the Official Liquidator's report dated 13th February 2006 in Company Application No.96 of 1999 in Company Petition No.21 of 1984 shall be treated as the amount settled, due and payable.
ii) Any interest or additional amount of whatever nature other than the sum settled in i) above shall not be considered, calculated or paid.
iii) Amount due and payable as per sub clause i) shall be paid to the workmen towards the full and final settlement of their dues.
iv) If any amount that is paid by the erstwhile company or the liquidator or that has been appropriated by the workmen after the cut off date, the same shall be deducted from the amount so payable under sub clause i) and the balance thereafter alone shall be payable.
v) Such sum shall be paid within 3 (three) months form effective date.
vi) Upon settlement of dues of the workmen in terms of the above, all the rights of workmen including the right to Page 86 of 133 Downloaded on : Fri Nov 10 21:04:42 IST 2023 NEUTRAL CITATION C/OJA/13/2019 CAV JUDGMENT DATED: 10/11/2023 undefined occupy the premises and properties of the Company and all the obligations of the company with respect to all or any of them arising out of, from or on account employment, terms related thereto and anything connected therewith or incidental thereto shall cease to exist and finally extinguished with effect from the cut off date.
Vii) If any suit, writ petition, appeal, revision or other proceedings of whatever nature against the Company and/ or its Principal Officer is filed by any of its workmen, the same shall be withdrawn upon payment /settlement in terms of the Scheme by the concerned workmen. However, any such suit, writ petition, appeal, revision or other proceedings of whatever nature against the Company and/ or its Principal Officer shall not be proceeded further by the concerned workmen from the date of sanction of the Scheme.
5. Business of the Company In contemporary facts and circumstances, the original business of the company i.e. manufacturing of textiles, if not found viable by the company / sponsor, the company shall diversify into such other business activities which may be found suitable, viable and permissible in accordance with the laws of the land.
6. Finance, Accounting and Managerial Aspects:
ii) On the Scheme being effective, in consideration of funds there for having been provided by the sponsor, the Company shall be empowered to issue and allot 2,20,000 Nos. of Equity Share of Rs.250/- each aggregating to Rs.5,50,00,000/- (Rupees five crores fifty lacs only) to the sponsor or its nominee. Equity shares so issued and allotted shall rank pari passu with the existing equity shares in all respects.
7. General:
vii) This scheme is conditional upon and shall not become operative until all the following conditions are fulfilled, viz.:
viii) In the event of any of the aforesaid sanctions and approvals, referred to in the preceding Clause 7 vii) above, Page 87 of 133 Downloaded on : Fri Nov 10 21:04:42 IST 2023 NEUTRAL CITATION C/OJA/13/2019 CAV JUDGMENT DATED: 10/11/2023 undefined not being obtained and / or the Scheme not being sanctioned by the High Court and / or the order or orders not being passed as aforesaid before 31.03.2009 or within such further period or periods as may be considered by the Sponsor without any limitations, the Scheme of Arrangement shall stand revoked, cancelled and be of no effect.
4. The petitioner No.1 is ex-Director of the Company and the petitioner No.2 is the Private Limited Company stated to have been incorporated on 13.6.2006 and engaged in the business of civil construction and real estate development. Before filing the petition, the petitioners had moved Company Application No.427 of 2008 seeking order for convening the meetings of various creditors and equity shareholders of the Company for the purpose of considering and, if thought fit, approving with or without modification, a scheme of compromise, to be made between the Company and its creditors. On the said application, the Court made order dated 22.8.2008 to convene the meeting of the secured creditors, statutory creditors and other creditors (as defined in the scheme) of the company for the purpose as aforesaid and also of the equity shareholders. However, as recorded in the said order, the meeting with the workmen of the Company was dispensed with in view of the affidavit dated 26.7.2008 submitted by the Textile Labour Association (TLA) giving its consent to the scheme and waiving its right to be called for meeting and to attend the meeting. It appears that thereafter, the Chairman appointed for such meetings convened separate meetings of the secured creditors, statutory creditors and shareholders. The Chairman who convened the meetings submitted his report dated 6.10.2008 as per which, the meeting with secured creditors was held on 25.9.2008 at 11 O'clock and at commencement of the meeting, representatives of two creditors, one Riverfront Properties Pvt. Ltd. -the petitioner No.2 and another State Bank of India (SBI), were present and the representatives of SBI left the meeting after stating that by virtue of the OTS entered by SBI with the Government of Gujarat, it had surrendered its security rights. The Chairman recorded that the secured creditor - the petitioner No.2 voted in favour of the scheme, then the meeting with the statutory creditors was held at 12.00 noon wherein voting against the proposed scheme was recorded as NIL, then meeting with other creditors was held at 1.00 p.m. wherein voting against the Page 88 of 133 Downloaded on : Fri Nov 10 21:04:42 IST 2023 NEUTRAL CITATION C/OJA/13/2019 CAV JUDGMENT DATED: 10/11/2023 undefined proposed scheme was recorded as NIL, then meeting of equity shareholders was held at 2.00 p.m and in particulars of the equity shareholders, it was recorded that two shareholders, named Manubhai S. Shah and Kanubhai S. Shah, who each had one share, voted against the scheme and the other equity shareholders voted in favour of the scheme."
[26] The details with regard to the share capitals subscribed paid-up as on 31.12.1984 is stated in tabular form which reads as under:-
"5. The petitioners have given out the details of share capitals, issued subscribed/ paid-up as on 31.12.1984, as under:-
18,000 Ordinary Shares of Rs.250/- each Rs.45,00,000 4000- 6.43% (Taxable) Cumulative Redeemable Rs.5,00,000 Preference Shares each of Rs.125/-
(redeemable with the notice of one Month at Face Value) Total Rs.50,00,000 Issued Subscribed & Paid-up:
10,000 Ordinary Shares of Rs.250/- Rs.25,00,000 3866- 6.43% Taxable) Cumulative Redeemable Rs.4,83,250/- Preference Shares each of Rs.125/-
(redeemable with the notice of one Month at Face Value) Total Rs.29,83,250.00
6. Though it is stated in the petition that Memorandum of Association of the company was not available at the time of filing the petition, however later on, copy of Memorandum of Association came to be placed on record with the Additional Affidavit filed by shri Shan Zaveri- the Director of the petitioner No.2 company. In clause 3 of the Memorandum of Association, the objects for which the Company was established are stated as under:-
(n) To carry on any other business which may seem to the Page 89 of 133 Downloaded on : Fri Nov 10 21:04:42 IST 2023 NEUTRAL CITATION C/OJA/13/2019 CAV JUDGMENT DATED: 10/11/2023 undefined company capable of being conveniently carried on in the connection with the above, or calculated directly or indirectly to enhance the value of, or render profitable any of the Company's property or rights.
(x) To sell or dispose of the undertaking of the company or any part there of in such manner and for such consideration as the company may think fit, and in particular for shares (Fully or partly paid up,) debentures, debenture stock or securities of any other company, whether promoted by this company for the purpose or not, and to improve, manage, develop, exchange, lease, dispose of, turn to account of otherwise deal with all any part of the property and rights of the company."
[27] In the light of aforesaid clauses, after evaluating the details, the submissions of learned advocates and after considering the material, the learned Company Judge has arrived at a conclusion, which conclusion is made the subject matter of present appeal, which we deem it proper to quote hereunder:
"21. Keeping in mind the above principles of law, the scheme proposed by the petitioners shall be required to be examined.
22. It is not in dispute that all movable properties, i.e. stock of goods, plants and machineries and super- structures were sold by the Official Liquidator with the permission of the Court in the year 1998 and out of the sale proceeds received of Rs.131 lac, ad-hoc disbursements were made amongst SBI, IDBI and the workmen on pro-rata basis. Thus, from 1998, the only property which has remained with the Company is the land admeasuring 35722.41 Sq. Mtrs. While the heirs of the lessor took out the proceedings to get back the land Page 90 of 133 Downloaded on : Fri Nov 10 21:04:42 IST 2023 NEUTRAL CITATION C/OJA/13/2019 CAV JUDGMENT DATED: 10/11/2023 undefined remained with the Company, the Official Liquidator started proceeding for sale of the rights in the land. Thus, from 1988 to 1998 i.e. between the order made for winding up of the company till the movable properties were sold, and thereafter till process for sale of the land was initiated in 2006, there was no move from anybody for revival of the company. While dismissing the O J Appeals of the heirs of the lessor, the Court directed Official Liquidator to issue fresh advertisement. Thereafter, shri Shaan Jhaveri filed application to recall the order for fresh advertisement and to accept the recommendation of the Official Liquidator for confirming the sale in his favour. Hon'ble Division Bench of this Court, while rejecting such application, being Misc. Civil Application No.96 of 2007, has observed in paragraph No. 6 to 9 of its order dated 17.10.2008 as under:-
6. In view of the above discussion, OJ Civil Application No.257 of 2008 is dismissed. OJ Misc.Civil Application No.96 of 2007 is also dismissed with liberty to the applicant to withdraw the amount of EMD, if still lying with the Official Liquidator and also with liberty to submit a fresh offer in response to the advertisement which the Official Liquidator will hereafter issue.
7. Mr.Soparkar, learned counsel for Shaan Zaveri applicant in OJ Misc. Civil Application No.96 of 2007 states that his client has already moved a scheme for revival of the Company which is posted for final hearing on 17.11.2008 and requests that it may be clarified that this order should not come in the way of his client's scheme being considered by the Company Court.
8. The only property still available with the Company in winding up is land admeasuring 35,722 sq.mtrs. in Ahmedabad, The Company was ordered to be wound up by order dated 05.05.1989. Its factory and machinery were sold long back. It is high time that the land is sold and the proceeds thereof are made available for disbursement to the workers, secured creditors, statutory creditors and if possible, to unsecured creditors also. It was on account of the interim stay during pendency of OJ Appeal Nos.65 to 67 of 2006 (which appeals are disposed of today by a separate judgment ) that everything was put on hold and the Official Liquidator was restrained from selling the leasehold rights of the Company in liquidation. In fact as pointed out on behalf of the Textile Labour Association at the hearing of the appeals, the other assets of the Company in liquidation have not yielded high returns as they were buildings and machineries which has depreciated before the sale. It is only the land which has Page 91 of 133 Downloaded on : Fri Nov 10 21:04:42 IST 2023 NEUTRAL CITATION C/OJA/13/2019 CAV JUDGMENT DATED: 10/11/2023 undefined appreciated in value and therefore, the land measuring 35,772 sq.mtrs. is the only asset available with the Company in winding up which can yield adequate returns for disbursement of the claims of the workers, secured creditors, statutory creditors and, if possible, unsecured creditors also.
9. For the forgoing reasons, Mr.Soparkar's request is rejected.
23. As stated above, the heirs of the lessor filed SLPs before Hon'ble Supreme Court, and Shri Shaan Jhaveri also approached Hon'ble Supreme Court by filing SLP against the order made on his application. The SLP of Shri Shaan Jhaveri was disposed of on the statement of his Counsel that it would not survive and thereafter, Hon'ble Supreme Court even dismissed the SLPs of the heirs of the lessor by its order dated 29.3.2016.
24. As could be noticed from the objects of the company, the Company was established to carry on its business concerning the work of spinning and weaving and to deal in cloths and other goods and fabrics whether in textile, friable, or knitted and other various kinds of work as a Mill company. In furtherance of its objects to carry on its business as a Mill company, it has in its objects made provisions to purchase or take on lease or otherwise to acquire any right or privilege in any property for the purpose of its business and to enhance the value of its properties.
25. It is required to note that the revival of the company, which has gone in liquidation, cannot be de-linked of its objects and cannot be considered irrespective of business activities to be carried on after its revival. When the company, which has all throughout from its birth/ incorporation functioned as Mill company with textile business, has already lost its machineries, plants, superstructures, etc., which were the basic need for doing its business, and is left with only the land as its property, there has to be a concrete and specific provision in the scheme as to the nature of business activities to be carried on after revival of the company, in absence of which, the scheme could be taken as ruse to grab the land of the Company under the guise of revival of the Company.
26. In clause 5 of the proposed scheme, the petitioners have provided for business of the Company as under:-Page 92 of 133 Downloaded on : Fri Nov 10 21:04:42 IST 2023
NEUTRAL CITATION C/OJA/13/2019 CAV JUDGMENT DATED: 10/11/2023 undefined "In contemporary facts and circumstances, the original business of the company i.e. manufacturing of textiles, if not found viable by the company / sponsor, the company shall diversify into such other business activities which may be found suitable, viable and permissible in accordance with the laws of the land."
27. Learned senior advocate Mr. Soparkar however submitted that the company was incorporated when the old Companies Act, 1913 was in operation and under the old Act, there was no distinction, like the main objects or the ancillary objects of the company for doing its business and that clause (n) in the objects of the company could be read as suitably provided for doing any business, the purpose of which is to enhance the value of or render profitable any of the company's properties or its rights and therefore, on revival of the company, it would be left to the company to decide whether to diversify into other business activities which may be found suitable, if manufacturing of the textiles is not found viable by the company.
28. The Court finds that it may be permissible for any company to take on any other business activity within the objects of the Company, if it finds that its original business activity may not be possible to be carried on any longer on account of various factors. But, when the scheme is proposed for revival of the company, it cannot be on ipse dixit as to doing of business on revival of the company and the proposers of the scheme cannot be allowed to fruitfully get away with revival of the scheme with no basic foundation for doing business for the Company and to say that leave it to us, whatever we think, we will do with the properties of the company.
29. The above provision made in clause 5 of the scheme for the business of the Company is as vague as it could be and has its own reflection on the intention of the petitioner No.2 to get the land of the Company, which it had already decided when it offered Rs.7.75 crore for purchase of the land of the Company in the auction held by the Official Liquidator. It appears that with this intention, the petitioner no.2 started paying dues to the secured creditor-
the SBI, the State Government of its guarantee and to ESI after moving the scheme. As observed in the above order dated 17.10.2008, the Court, while dismissing the Page 93 of 133 Downloaded on : Fri Nov 10 21:04:42 IST 2023 NEUTRAL CITATION C/OJA/13/2019 CAV JUDGMENT DATED: 10/11/2023 undefined application of the promoter of the petitioner No.2, refused to accede to the request made on his behalf to clarify that the said order should not come in his way when his scheme would be considered by observing that the land was the only assets of the Company which could yield high return for disbursement to workers and all creditors.
30. Pending consideration of the scheme, the petitioner No.2 paid dues of the SBI, which was of Rs.4,17,90,192/- somewhere in the month of November 2012 and also paid guarantee amount to the State Government and also paid dues of the ESI and to this effect, affidavit dated 12.2.2012, as referred above, giving details of payments made to the State Government, SBI, IDBI and ESIC was made by its Director. Now, based on the above such payments made, it is urged before the Court that the secured creditors are fully paid, that the workers have consented through TLA to accept the dues as ascertained by the Official Liquidator as per his report dated 13.2.2006 and that the statutory creditors and majority shareholders have no objection to grant sanction to the scheme. It is not the law laid down that the payment of dues to the secured creditors is the only consideration for revival of the scheme. Even if the secured creditors are fully paid and the scheme makes the provisions for payment of dues to other creditors and the workers of the Company, the Court shall be still required to decide whether the scheme brought before it for its approval is in fact the scheme for revival of the company or there is some other intention behind the scheme. As held by Hon`ble Supreme Court in the case of Miheer Mafatlal (supra), 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 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 Page 94 of 133 Downloaded on : Fri Nov 10 21:04:42 IST 2023 NEUTRAL CITATION C/OJA/13/2019 CAV JUDGMENT DATED: 10/11/2023 undefined 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 as a rubber stamp and must almost automatically put its seal of approval on such a scheme. As stated in the petition, the promoters of petitioner No.2 Company were in real estate business and the petitioner No.2 is a company registered under the Act. It deals in real estate business. After its promoters remained unsuccessful in getting the sale confirmed in their favour with the offer of Rs.7.75 crore for purchase of the rights in the land left with the company, it started managing to pay/ satisfy the dues of IDBI, SBI and other creditors of the company. As per the provisions made in the scheme, against the payment made by the petitioner No.2 of Rs.15 lac to IDBI to get assignment of rights of IDBI in its favour, it wants allotment of equity shares and it also wants further allotment of large number of equity shares i. e of 2,20,000 equity shares in consideration of funds to be provided by it on scheme being effective. The petitioner No.2 has already claimed that it has acquired rights in 5693 equity shares of the company. These 5693 equity shares of the company include 3669 equity shares, in which the petitioner No.2 claims transfer of rights by assignment by IDBI in its favour. These very shares were pledged with IDBI by the share holders of the Company as security against the financial facilities advanced to the Company. The Court finds that though the petitioner No.2 claims to have assignment of rights which the IDBI had in the above shares against the payment of amount of Rs.15 lac as consideration, it still wants further allotment of equity shares against this very amount paid for settling the dues of IDBI. Such provision made in the scheme for assignment of further equity shares for settling the dues of IDBI and further provision made in clause (6) (ii) of the scheme for allotment of 2,20,000 equity shares on scheme being effective, in consideration of the funds to be provided, reflect on the intention of the petitioner No.2 that the scheme proposed by it is nothing but to swallow the company under the guise of revival of the company. Such intention gets fortified by referring to clause 5 in the scheme for business of the company, where, as discussed above, there is no concrete proposal for doing any business activity, much less the business activity related to the original business of the company. Therefore, it appears Page 95 of 133 Downloaded on : Fri Nov 10 21:04:42 IST 2023 NEUTRAL CITATION C/OJA/13/2019 CAV JUDGMENT DATED: 10/11/2023 undefined to the Court that approving/ sanctioning the scheme proposed by the petitioners would amount to allowing the petitioner No.2 to grab the only immovable properties- the land now left with the company. As per the principles of law settled, the Court is not to sit in appeal over the commercial wisdom behind the scheme, however the Court is not to mechanically grant its approval to the scheme even when it finds the scheme is not for revival of the Company. At this stage, it is required to note that as back as in 1984, the Government came out with notification for providing relief to the sick textile industries under which the company was declared as Relief Undertaking. For the company which had already suffered deterioration and could not come out of its financial crises though Government extended relief to it and ultimately suffered the winding up, what worth of the scheme could be for revival of such Company when it appears to the Court that the petitioners are interested only in the land of the Company. The petitioner no.1 is the ex-Director of the Company and appears to have come in help of the petitioner no.2 to grab the land of the Company without any real intention for revival of the Company.
31. It is required to note that indisputably, SBI was the only secured creditor against the immovable properties of the company. The IDBI had no security interest against immovable properties of the company. As stated by the petitioners, IDBI had sanctioned financial facility to the company, against which the company had hypothecated the plants, machineries and stocks and group of shareholders had pledged their shares with IDBI as security. However, in the scheme, the IDBI is shown as secured creditor. For the secured creditors, it is stated in the scheme that the dues of SBI are settled for a sum of Rs.2,64,14,885/- and reference to some part-payment to SBI is made in the scheme. In the affidavit-in-reply dated 14.3.2009 filed on behalf of SBI, the SBI has taken objection against the way in which the meeting of the secured creditors was conducted by the Chairman of the meetings and it is stated that how on payment of Rs.15 lac, being the value of debt of IDBI, made by the petitioner No.2, the petitioner No.2 could have been permitted to cast its vote as secured creditor in the meeting of the secured creditors when the IDBI was not the secured creditor. Serious grievance is made in the affidavit against the Chairman of the meetings stating that the Chairman of the meetings, without verifying the position of the Page 96 of 133 Downloaded on : Fri Nov 10 21:04:42 IST 2023 NEUTRAL CITATION C/OJA/13/2019 CAV JUDGMENT DATED: 10/11/2023 undefined petitioner No.2 vis-a-vis the status of IDBI, permitted the petitioner No.2 to vote as secured creditor, which was nothing but a fraud committed by the petitioner No.2 and since the petitioner No.2 was permitted to vote as secured creditor, the proceedings of the meeting conducted by the Chairman for the scheme of compromise would stand vitiated. Further stand taken by the SBI in its affidavit is that the petitioner No.2 could not have been otherwise considered as shareholder of the company and therefore, it was also not entitled to participate in the meeting of the shareholders and to vote as shareholder of the company. It is further stated in the affidavit that the scheme presented is, in fact, not for revival of the company but the main idea behind the scheme is to grab the valuable properties of the company. It is pointed out that the lands left with the company are of Survey Nos.4823 to 4832, 4844 to 4895, 4899, 4901 to 4911, 5002 to 5011 and 5049 admeasuring 35072 Sq. Mtrs. in Raikhad area of Ahmedabad city and the price of such lands on account of Riverfront project would go much higher beyond Rs.15 crore, to be realized if auction is to be held. Learned advocate Mr. Shelat submitted that now the value of the land as per the present market value prevailing in the area could be taken beyond 100 crore.
32. The workers' dues remained unpaid all throughout except that after selling the movable properties, the workers got ad-hoc disbursement. Though, as observed above, in view of the order passed earlier by this Court in the application made by Prasad Mills Kamdar Samiti, the same 521 workmen could not be permitted to raise their objections through another Union, though it is registered Union, however in the context of the provisions of Sections 529, 529-A and 530 of the Act for the workmen's dues, no workman could be denied to have his say on the grievance that his interest was not duly taken care of for determination on his claim for his dues. In this context, learned advocate Mr. Shelat made strenuous efforts to point out that procedure not known to law was followed by the petitioners in the matter of making prayer to dispense with the meeting with the workmen by annexing the affidavit of TLA. Mr. Shelat submitted that TLA decided, without taking all the workers in confidence, to accept the dues ascertained as referred in the scheme, though at no point of time, the claims of the workers were ever called for and the final determination on the claims of the workers was ever made. However, learned advocate Mr. Page 97 of 133 Downloaded on : Fri Nov 10 21:04:42 IST 2023 NEUTRAL CITATION C/OJA/13/2019 CAV JUDGMENT DATED: 10/11/2023 undefined Vasavada appearing for TLA submitted that all throughout, TLA represented the workmen of the company and at no point of time, any workman has made any greivance against the TLA as regards its decision to accept the dues ascertained and to give consent to the scheme. He submitted that reference to the workmen's dues ascertained in the scheme is on the basis of the Official Liquidator's Report dated 13.2.2006 filed in Company Application No.196 of 1999. However, the Court when asked to learned advocate Mr. Vasavda to provide the copy of order made for verification/ examination of the claims of the workmen for final determination of the dues of the workmen, neither he could provide copy of any such order nor any other advocate could provide copy of the order, if passed. It is required to note that when the Court asked the Registry to provide original record of the company petition and the applications made therein as also the orders made on the applications, including the order for verification/examination of the claims for final determination of the dues the workmen, the Registry could not provide such original record.
33. It is required to note that either in the scheme for revival/ rehabilitation or in the proceeding for winding up of the company, the workmen's dues are at center. However, it is not that for nonpayment of the workmen's dues, no scheme for revival could be considered by the Court but it is equally true that simply because there is a provision made in the scheme for settling the dues of the workmen, the Court would desist itself from considering the nature of the scheme or the intention behind proposing the scheme for compromise. In fact, in the context of the workmen's dues, the Official Liquidator in his report dated 21.3.2012 has stated that the Company Application No.388 of 1998 was filed for 1429 workers claiming amount of Rs.23,01,46,874/-, that the claims of the workers, according to the Chartered Accountant, were found admissible to the extent of Rs.7,90,88,784/-. However, the Official Liquidator has further stated that till date, the claims of the workers, secured creditors and statutory creditors are not invited as per the Company Court Rules by the Official Liquidator and it was the workers' Union which on its own had forwarded the list of the workers and their claims to the Chartered Accountant for verification. Learned senior advocate Mr. Soparkar however submitted that when there is no opposition from the representative union against the scheme, the petitioners would not object Page 98 of 133 Downloaded on : Fri Nov 10 21:04:42 IST 2023 NEUTRAL CITATION C/OJA/13/2019 CAV JUDGMENT DATED: 10/11/2023 undefined to whatever the court provides for more benefits to the workers and when there is no opposition from the secured creditors and from majority shareholders, there could not be any objection in sanctioning the scheme considering the legislative intention behind making the provision of Sections 391 to 394 of the Act. Learned advocate Mr. Desai however submitted that the report of the Chairman of the meeting held with the secured creditors and shareholders could not be relied to sanction the scheme. The Court finds that it could not be disputed before the Court that IDBI was not the secured creditor against the immovable properties of the company and therefore it could not have been considered as secured creditor in the meeting of the secured creditors. In fact, Nayanaben , who was equity shareholder, for whom it is stated that she consented to the scheme has come out with serious grievance in her reply as to the way in which the Chairman conducted the meeting with the shareholders. Irrespective of the objection taken by Nayanaben in her reply, the Court finds that since the IDBI could not have been considered as secured creditor, the petitioner no.2 could not be allowed to take part as secured creditor in the meeting of the secured creditors. The Court finds that though the SBI has now not opposed on receiving the full payment of its dues, to grant sanction to the scheme for revival of the company, such would hardly carry the matter any further in favour of the petitioners inasmuch as the Court does not find that the scheme proposed is for revival of the company. Learned advocate Mr. Vasavada however submitted that for long time, the workmen have been waiting for their dues and when the scheme has come with provision for payment of dues of the workmen, the workmen would have been satisfied with the dues ascertained as per the report of the Official Liquidator otherwise they would see the light of payment of their dues after long time. But, such would hardly be consideration for sanctioning the scheme. When the valuable land as a property is available with the company and if such land could be successfully sold in near future, the workmen of the company may get more amount than what they would have expected. Be that as it may, for the reasons stated above, the Court does not find that the scheme deserves to be accepted and approved by this Court in exercise of the powers under Sections 391 to 394 of the Act. The petition is therefore, required to be rejected. It is accordingly rejected. Notice discharged." Page 99 of 133 Downloaded on : Fri Nov 10 21:04:42 IST 2023
NEUTRAL CITATION C/OJA/13/2019 CAV JUDGMENT DATED: 10/11/2023 undefined [28] The aforesaid observation and conclusion which has been arrived at has led to rejection of petition and notice came to be discharged and it is this conclusion was agitated to be not in consonance with intent of the scheme by the learned senior advocate appearing on behalf of appellants. The detail submissions, which we have considered, if to be perused in the context of aforesaid observations, we find the following features to arrive at an ultimate conclusion.
[29] The scheme in question, which has been incorporated in paragraph 3 is consisting of several clauses, which not only define "appointed date", "applicant", "cut off date", "Secured Creditors", "Statutory Creditors", "Effective Date" in the meaning of scheme and several such clauses. In term, "Secured Creditors" as defined in Clause No. 1(vi)(a), which reads as under:-
"(a) 'Secured Creditors' means creditors having lent money or granted credit facilities to the Company in the form of loan, deposit, guarantee or other finances or funds which is/are secured by way of a charge created over the movable and/or immovable properties and assets of the Company on account of deed of hypothecation, mortgage or deposit of title deeds, as the case may be and include the State Bank of India and/or IDBI Bank Ltd. or its respective assignee/s."Page 100 of 133 Downloaded on : Fri Nov 10 21:04:42 IST 2023
NEUTRAL CITATION C/OJA/13/2019 CAV JUDGMENT DATED: 10/11/2023 undefined [30] The "workmen" as defined in Clause 1(vi)(c). The relevant definition of scheme is incorporated in Clause 1(xi), which reads as under:-
"xi) 'Scheme' means the proposed scheme of compromise or arrangement between the Company and its creditors, shareholders and the sponsor/s or the proposed scheme with such modification(s), if any, made as per directions of the High Court or otherwise, for reconstruction of the Company."
[31] The "sponsor" means Riverfront Properties Pvt. Ltd. (RPPL), as mentioned in Clause 1 (xiii). The background which has been narrated in Clause 2 (i) which is the factual foundation and as such, we deem it proper to incorporate hereunder:-
"i) Prasad Mills Ltd. (in liquidation) has been registered as a company on 3 rd September 1914 at Sr. No.41 with the office of the Registrar of Companies, Bombay under its erstwhile name i.e. Bechardas Spinning and Weaving Mills Ltd. Its registered office used to be at Raikhad, Ahmedabd, 380001. The Company was engaged in the business of manufacturing textiles. The operations of the Company came to standstill around January 1984 due to financial difficulties, interalia the non payment of electricity supply bill/s. The Company used to be under the protection and purview of Bombay Relief Undertakings Act (Special Provisions) Act, 1958 upto May 1986. On 23 rd August 1988, pursuant to winding up petitions before the High Court of Gujarat, the Company was directed to be wound up. Properties and assets of the company came into possession of the Official Liquidator from 23 rd August 1988. In the year 1998, movable properties of the company, namely, the stock of goods, plant and machinery etc. and superstructure of the building/s were put to sale Page 101 of 133 Downloaded on : Fri Nov 10 21:04:42 IST 2023 NEUTRAL CITATION C/OJA/13/2019 CAV JUDGMENT DATED: 10/11/2023 undefined by the Official Liquidator and accordingly the said assets were disposed off for the aggregate consideration of Rs.131 lacs. Thereafter the properties and assets of the company that have remained are (i) freehold and leasehold rights of land admeausring about 36971.25 Sq. mtrs., which is now reduced by the area as actually acquired by the Ahmedabad Municipal Corporation for widening of the road; (ii) unrealised investments/ dues of the company, if any and (iii) cash and bank balance with the Official Liquidator. The Company is entitled to the usage of the leasehold portion of the land on account of a lease deed dated 10.12.1916 executed between late Shri Durgaprasad Shabhuprasad Lashkari and the Company. The period of lease is for 199 years and lease rent payable per annum is about Rs.3500/-. Pursuant to the directions of the Gujarat High Court, leasehold rights in the said land have been put to sale by the Official Liquidator. Pursuant thereto the promoters of the Sponsor-RPPL have bidded in their personal capacity for the acquisition of the leasehold rights in April May 2006. the offer of the said promoters of the sponsor being the highest (RS 7.75 crores) has been recommended by the Official Liquidator vide his report no.45 of 2005 for acceptance/ confirmation by the Gujarat High Court. Simultaneously, aggrieved by the action of the Official Liquidator, few persons claiming to be the heirs/ legal representatives / successors of the late lessor- Shri Durgaprasad Shambhuprasad Lashkari; initiated proceedings before Gujarat High Court seeking a direction that the Official Liquidator of the Company should hand over possession of the lands to the said alleged heirs/legal representatives and also seeking an injunction restraining the Official Liquidator from selling/transferring the lands/leasehold rights of the company. The learned Single Judge of the Gujarat High Court dismissed the said proceedings of the heirs/legal representatives. Being aggrieved by the same some of the alleged heirs/legal representatives have preferred appeals before the appellate forum of the Gujarat High Court. Pending the Appelas, the appelalte forum of the Gujarat High Court has granted an interim injunction against sale of such rights.
The said appeals are heard and the judgement is awaited. On account of the interim order passed by the appellate forum of the Gujarat High Court in the appeals, the Official Liquidator's report 45/2005 is awaiting further orders." [32] Clause 2(iv) is with regard to dues of the Company, which Page 102 of 133 Downloaded on : Fri Nov 10 21:04:42 IST 2023 NEUTRAL CITATION C/OJA/13/2019 CAV JUDGMENT DATED: 10/11/2023 undefined is quoted hereunder:-
"iv) Dues of the Industrial Development Bank of India(IDBI), being the secured creditor the Company, has been settled and paid off by the Sponsor-RPPL. IDBI has assigned its right, title and interest in the debt due to IDBI from the Company along with its security interest in favour of the Sponsor-RPPL. IDBI has filed Company Application No.414 of 2007 before the Gujarat High Court seeking appropriate directions under the provisions of the Companies Act, 1956, thereby seeking to substitute the name of the Sponsor-RPPL in place of IDBI as the secured creditor of the Company. The said Company Application 414/2007 is pending the awaits decision of the Gujarat High Court."
[33] Similarly Clause 2(vi) being relevant, we thought it fit to reproduce hereunder:-
"vi) Sponsor-RPPL has acquired interest in aggregate 5693 nos. of Equity Shares of the Company. Out of the said 5693 shares, 3669 Equity Shares are acquired as the assignee of the debt of the IDBI and 2024 Equity Shares are acquired as the purchaser from various Shareholders/ contributories of the Company. As the Company is in winding up, the transfer of shares is subject to the approval of the Gujarat High Court. Sponsor has approached the Official liquidator vide its letter dated 26 th November 2007 and 14 th July 2008 respectively, with a request to recognise the sponsor- RPPL's rights, title and interest in the said 2024 Equity shares and to effectuate the changes in the List of Contributories of the Company."
[34] Though the learned Single Judge has narrated all these relevant clauses practically the entire scheme and since we are in appeal, we reproduce few relevant clauses to examine as to Page 103 of 133 Downloaded on : Fri Nov 10 21:04:42 IST 2023 NEUTRAL CITATION C/OJA/13/2019 CAV JUDGMENT DATED: 10/11/2023 undefined whether the reasons assigned by the learned Single Judge i.e. Company Court are in consonance with clauses of the scheme or not. The term Secured Creditor also needs an attention and as such, we deem it proper to reproduced hereunder:
"4.1 Secured Creditors
i) Industrial Development Bank of India (IDBI) and State Bank of India (SBI) a. Dues of the IDBI, being a Secured Creditor, has been settled for the sum of Rs. 15,00,000/- (Rupees fifteen lacs) and the same have been paid for in full by the sponsor to the IDBI. There are no outstanding dues which are payable to IDBI by the Company. Subject to the provision of the Scheme and vide paragraph No.6(ii) of the Scheme, payment of such settled dues of the IDBI as have been made by the Sponsor, shall be adjusted towards issue and allotment of Equity Shares of the Company.
b. Dues of the State Bank of India, being the other Secured Creditor, have been settled for the sum of Rs. 2,64,14,885/- (Rupees two crores sixty four lacs fourteen thousand eight hundred eighty five) by the Applicant. For the said settlement, a sum of Rs. 13,00,000/- (Rupees thirteen lacs) has been tendered by the Sponsor to the State Bank of India being a sum of Rs.2,51,14,885/- (Rupees two crores fifty one lacs fourteen thousand eight hundred eighty five) is proposed to be paid by the Sponsor in terms of the its letter dated 20 th June 2008 bearing No. SAMB / 08-09 / TRP / 513.
State Bank of India, vide the aforesaid letter dated 20 th June 2008 has conveyed that (i) upfront deposit of Rs. 13,00,000/- tendered towards the settlement of dues has been adjusted towards the said sum of Rs.2,64,14,885/-;
(ii) balance of Rs. 2,51,14,551/- (Rupees two crores fifty one lacs fourteen thousand five hundred fifty one only) shall have to be paid before 20 th July 2008, failing which, such amount can be paid within the grace period of another 3 months i.e. till 20 th October 2008. However, Page 104 of 133 Downloaded on : Fri Nov 10 21:04:42 IST 2023 NEUTRAL CITATION C/OJA/13/2019 CAV JUDGMENT DATED: 10/11/2023 undefined interest at SBAR i.e. @12.25% shall have to be paid for the payment not made, from sanctioned date of such settlement i.e. 17 th June 2008 till its actual payment; and
(iii) failure to pay such settled dues even with the said grace period shall cancel the agreed to settlement and bank shall be entitled to recover the dues as determined by the Debt Recovery Tribunal, Ahmedabad. Subject to the provisions of the Scheme and vide paragraph No.6ii) of the Scheme, payment of such dues of the State Bank of India, as have been made and to be effected by the Sponsor shall be adjusted towards issue and allotment of Equity Shares of the Company.
ii) Amount due and payable as per the above sub clause (i)
b) shall be paid to the State Bank of India towards the full and final settlement of its dues within 1 (one) month from effective date.
iii) Any sum above the amount settled and due as per sub clause (i) above, whether principal, interest, charge, penalty or the like shall not be calculated or paid to any of the secured creditors.
iv) If any suit, writ petition, appeals, revision or other proceedings of whatever nature against the Company are filed by any of the said Secured Creditors, the same shall be withdrawn upon the payment being made to the said creditor in terms of the Scheme. However, any such suit, writ petition, appeal, revision or other proceedings of whatever nature against the Company and/or the Guarantor/s shall not be proceeded further by the said Secured Creditor from the date of sanction of the Scheme.
v) Upon payment of dues of the Secured Creditor/s in terms of (i) and (ii) above, each of the said Secured Creditor/s shall release its respective charge, encumbrance, lien or the like, if any, over the respective properties and assets of the Company and/or that of its guarantor's and shall forthwith or simultaneously had over the original documents evidencing or creating the said charge along with the title deeds of the properties and assets of the Company or that of its guarantors and shall forthwith and simultaneously also execute the documents in this behalf and at any rate not later than 15 days from the receipt of the respective amounts in terms of the Scheme."
Page 105 of 133 Downloaded on : Fri Nov 10 21:04:42 IST 2023
NEUTRAL CITATION C/OJA/13/2019 CAV JUDGMENT DATED: 10/11/2023 undefined [35] Clause 4.3 relates to workmen and since Official Liquidator is objecting to the scheme on a substantial ground of interest of workers also, we deem it proper to quote paragraph 4.3 hereunder:-
"4.3 Workmen
i) 'Workmen's dues' as ascertained by the Official Liquidator and reported to the High Court of Gujarat vide the Official Liquidator's report dated 13 th February 2006 in Company Application No.96 of 1999 in Company Petition No.21 of 1984 shall be treated as the amount settled, due and payable.
ii) Any interest or additional amount of whatever nature other than the sum settled in i) above shall not be considered, calculated or paid.
iii) Amount due and payable as per sub clause i) shall be paid to the workmen towards the full and final settlement of their dues.
iv) If any amount that is paid by the erstwhile company or the liquidator or that has been appropriated by the workmen after the cut off date, the same shall be deducted from the amount so payable under sub clause i) and the balance thereafter alone shall be payable.
v) Such sum shall be paid within 3 (three) months form effective date.
vi) Upon settlement of dues of the workmen in terms of the above, all the rights of workmen including the right to occupy the premises and properties of the Company and all the obligations of the company with respect to all or any of them arising out of, from or on account employment, terms related thereto and anything connected therewith or incidental thereto shall cease to exist and finally extinguished with effect from the cut off date.Page 106 of 133 Downloaded on : Fri Nov 10 21:04:42 IST 2023
NEUTRAL CITATION C/OJA/13/2019 CAV JUDGMENT DATED: 10/11/2023 undefined Vii) If any suit, writ petition, appeal, revision or other proceedings of whatever nature against the Company and/ or its Principal Officer is filed by any of its workmen, the same shall be withdrawn upon payment /settlement in terms of the Scheme by the concerned workmen. However, any such suit, writ petition, appeal, revision or other proceedings of whatever nature against the Company and/ or its Principal Officer shall not be proceeded further by the concerned workmen from the date of sanction of the Scheme."
[36] The main substantive Clause 5 relates to business of the Company which being the most relevant clause deserves to be quoted hereunder:-
"5. Business of the Company In contemporary facts and circumstances, the original business of the company i.e. manufacturing of textiles, if not found viable by the company / sponsor, the company shall diversify into such other business activities which may be found suitable, viable and permissible in accordance with the laws of the land."
[37] Clause 6 is dealing with Finance, Accounting and Managerial aspects whereas Clauses 7(vii) & (viii) reflecting on page 29 are also quoted hereunder:-
"6. Finance, Accounting and Managerial Aspects:
i) Sponsor shall provide the funds for the Scheme and the Company shall bear with the cost of the scheme.
ii) On the Scheme being effective, in consideration of funds Page 107 of 133 Downloaded on : Fri Nov 10 21:04:42 IST 2023 NEUTRAL CITATION C/OJA/13/2019 CAV JUDGMENT DATED: 10/11/2023 undefined there for having been provided by the sponsor, the Company shall be empowered to issue and allot 2,20,000 Nos. of Equity Share of Rs.250/- each aggregating to Rs.5,50,00,000/- (Rupees five crores fifty lacs only) to the sponsor or its nominee. Equity shares so issued and allotted shall rank pari passu with the existing equity shares in all respects.
iii) Issue and allotment of such equity shares shall be considered as compliances as to supplementing the capital of the Company in terms of the provisions of section 80 of the Act, as far as redemption of 3866 No of 6.43% (subject to Tax) Preference Share of Rs.125/- each, are concerned.
iv) Notwithstanding the above, sponsor shall have full rights and privileges to leverage the funds i.e. proportion of debt and equity; that they may introduce to bring this scheme into effect. Additionally, sponsor shall have complete discretion as to the choice of financial instrument/s as to the debt or equity and terms and conditions governing the same; and the Company shall accordingly issue and allot the shares/ instrument/s of debt in favour of the sponsor or its nominee. However, so far as the terms of the payment of interest is concerned, the debt or instrument of debt shall not bear the annual rate of interest in excess of 500 basis points above the upper band of the prime lending rate declared by the Reserve Bank of India for the last financial year from time to time.
v) The members of the board of directors, in consultation with the auditors may give suitable accounting treatment to any deletion, sale, disposal of assets or settlement, payment, reduction of liabilities, diminution, impairment or accretion in the value of assets or for any of the transactions of the Company whether arising out of the scheme of during the time its properties and assets remained vested in the Liquidation. Such accounting effects shall be recorded under the head of "Reconstruction Account". Accumulated losses of the company shall merge into the "Reconstruction Account"
Credit balance "Reconstruction Account", if any, would be treated as free reserve for all purposes and debit balance, if any, shall be treated as the cost of improvement in the leasehold rights of the land.
vi) Upon sanction of the scheme, board of directors of the Company shall be freshly constituted. Till the board of Page 108 of 133 Downloaded on : Fri Nov 10 21:04:42 IST 2023 NEUTRAL CITATION C/OJA/13/2019 CAV JUDGMENT DATED: 10/11/2023 undefined directors of the Company is so constituted, members of the board of directors of the Sponsor shall, by virtue of their office be ipso facto directors of the Company.
7. General:
vii) This scheme is conditional upon and shall not become operative until all the following conditions are fulfilled, viz.:
(a) sanction by the High Court of Gujarat under Section 391 of the Act, and necessary Order or Orders being passed and the same being filed with the Registrar of Companies, Gujarat;
(b) Liquidator of the Company hands over peaceful possession of all the properties and assets of the Company; whether moveable or immoveable, which are so far not disposed off, alienated or transferred by his office under the directives or order/s of the High Court of Gujarat, in the same order and condition in which he had taken possession of from the Company.
viii) In the event of any of the aforesaid sanctions and approvals, referred to in the preceding Clause 7 vii) above, not being obtained and / or the Scheme not being sanctioned by the High Court and / or the order or orders not being passed as aforesaid before 31.03.2009 or within such further period or periods as may be considered by the Sponsor without any limitations, the Scheme of Arrangement shall stand revoked, cancelled and be of no effect."
[38] On the basis of these clauses and after narrating the same, it has been recorded by the learned Single Judge that petitioner No.1 is the ex-Director of the Company and the petitioner No.2 is the Private Limited Company and engaged in the business of civil construction and real estate development and did move an application being Company Application No.427 of 2008 before Page 109 of 133 Downloaded on : Fri Nov 10 21:04:42 IST 2023 NEUTRAL CITATION C/OJA/13/2019 CAV JUDGMENT DATED: 10/11/2023 undefined the Court which was dealt with vide order dated 22.08.2008 whereby a meeting was convened of secured creditors, statutory creditors and other creditors and also of the equity shareholders. Since the Textile Labour Association (TLA) had giving its consent to the scheme and waiving its right to be called for meeting and to attend the meeting. The meeting with the workmen of the Company was dispensed with in view of specific affidavit on oath filed by TLA on 26.07.2008. [39] The meeting which was convened, the Chairman submitted his report on 06.10.2008 in which it was indicated that the meeting was scheduled on 25.09.2008 at 11 O'clock and at the time of commencement of meeting, the representatives of two creditors, one Riverfront Properties Pvt. Ltd. - the petitioner No.2 and another State Bank of India (SBI), were present and the representatives of SBI left the meeting after indicating the particulars with regard to the OTS entered into by SBI with the Government of Gujarat, it had surrendered its security rights. After clearing the dues, who became the secured creditor, voted in favour of the scheme and the meeting Page 110 of 133 Downloaded on : Fri Nov 10 21:04:42 IST 2023 NEUTRAL CITATION C/OJA/13/2019 CAV JUDGMENT DATED: 10/11/2023 undefined which then was convened at 12.00 p.m. wherein the voting against the proposed scheme was recorded as NIL. Subsequently, another round of meeting with other creditors took place at 1.00 p.m. wherein also the voting against the proposed scheme was recorded as NIL. Subsequently, meeting with equity shareholders was also held simultaneously at 2.00 p.m. and in particulars of the equity shareholders, it was recorded that two shareholders, named as Manubhai S. Shah and Kanubhai S. Shah, who each had one share, voted against the scheme and the other equity shareholders voted in favour of the scheme.
[40] The petitioners had detailed out the share capitals particulars, issued subscribed / paid-up as on 31.12.1984, which indicates hereunder:-
18,000 Ordinary Shares of Rs.250/- each Rs.45,00,000 4000- 6.43% (Taxable) Cumulative Redeemable Rs.5,00,000 Preference Shares each of Rs.125/-
(redeemable with the notice of one Month at Face Value) Total Rs.50,00,000 Issued Subscribed & Paid-up:
10,000 Ordinary Shares of Rs.250/- Rs.25,00,000 3866- 6.43% Taxable) Cumulative Redeemable Rs.4,83,250/- Preference Shares each of Rs.125/-Page 111 of 133 Downloaded on : Fri Nov 10 21:04:42 IST 2023
NEUTRAL CITATION C/OJA/13/2019 CAV JUDGMENT DATED: 10/11/2023 undefined (redeemable with the notice of one Month at Face Value) Total Rs.29,83,250.00 [41] At this juncture, it is to be noted that Naynaben one of the stakeholders of marginal shares at that time did not object to the scheme. Of course, subsequently, attempted to object as an afterthought measure, but according to the appellants, the meeting was concluded and prior thereto, the objections which were raised, were also dealt with.
[42] Then the question arose with regard to the land of the Company in which after the Court passed an order for putting the properties (leasehold land) of the Company to sale, that the promoters of the petitioner No.2, at a relevant point of time, made the highest offer of Rs.7.75 crore in the process of sale and the Official Liquidator had recommended for confirmation of sale in their favour, but few persons claiming to be the heirs of the lessor of the land submitted Company Applications claiming possession of the land, that learned Company Judge rejected such applications, against which they filed O.J Appeals wherein the Appellate Court granted interim injunction against Page 112 of 133 Downloaded on : Fri Nov 10 21:04:42 IST 2023 NEUTRAL CITATION C/OJA/13/2019 CAV JUDGMENT DATED: 10/11/2023 undefined sale of the rights in the land. Subsequently, a change has taken place where original petitioner No.2 had resources to sponsor and support the scheme of compromise / arrangement of the Company, that the dues of the Industrial Development Bank of India (IDBI), being secured creditor of the Company, were settled and paid up by the petitioner No.2, for which the IDBI specifically as assigned its right, title and interest in the debt due to IDBI from the Company along with its security interest in its favour, the same is not in dispute. Simultaneously, the dues of the SBI, being other secured creditor of the Company has also been settled for Rs.2,64,14,885/- and the said settled amount is proposed to be paid in terms of the scheme and as a result of this, the petitioner No.2 has acquired 5693 numbers of equity shares of the Company, out of which 3669 equity shares were acquired as assignee of IDBI and 2024 equity shares were acquired as purchasers from various shareholders / contributors of the Company and transfer of which was made the subject matter of approval of the Court in Company is in liquidation.
[43] Facts further reveals as has been recorded that at a Page 113 of 133 Downloaded on : Fri Nov 10 21:04:42 IST 2023 NEUTRAL CITATION C/OJA/13/2019 CAV JUDGMENT DATED: 10/11/2023 undefined relevant point of time the IDBI filed Company Application No.414 of 2007 to ratify its action in assigning all its rights, title and interest in favour of the petitioner No.2 of the Company and to consider the same by virtue of Section 536 of the Act and the Court vide order dated 25.8.2008 was pleased to allow the application and the action of IDBI was ratified and the same was passed after hearing all the parties and the Official Liquidator was directed to effect the transfer of above shares in the name of the petitioner No.2 and to deal with the petitioner No.2 as assignee of IDBI in future transactions which may take up in the winding-up proceedings. It is also reveal that the OJ Appeals filed by the legal heirs of original lessor were dismissed and the application of the promoter of petitioner No.2 for direction to accept the recommendation of the Official Liquidator to confirm the sale was also disposed of along with appeals and then the Official Liquidator was directed to proceed with the sale of the leasehold rights and against this orders, the heirs of the lessor filed Special Leave to Appeals and the promoter of the petitioner no.2 also filed SLP.Page 114 of 133 Downloaded on : Fri Nov 10 21:04:42 IST 2023
NEUTRAL CITATION C/OJA/13/2019 CAV JUDGMENT DATED: 10/11/2023 undefined [44] It has been further recorded incidentally that in the first report dated 10.4.2010 filed by the Assistant Official Liquidator, the workers of the company made claim towards their dues to the extent of Rs.23,01,46,874/- and then the said claims of the workers were verified by the Chartered Accountant and the claims of the workers were found to be admissible to the extent of Rs.7,90,88,784/-. It is further stated that out of the sale proceeds of the assets of the company, an amount of Rs.60 lac was paid to the SBI and an amount of Rs.77,32,407/- was paid to the workers of the Company on ad-hoc basis and then a sum of Rs.19 lac was paid to IDBI on ad-hoc basis and equal amount of Rs.19 lac was again paid to the workers on ad-hoc basis, which remain left out fund of Rs.63,20,965/- with Official Liquidator in the company's account.
[45] A further additional affidavit dated 28.02.2012 being part of the records also indicates that one of the Directors of petitioner No.2 stating on oath that the petitioners have made the payment towards the scheme including Government statutory dues, SBI, IDBI, ESIC etc. which is charted out in his Page 115 of 133 Downloaded on : Fri Nov 10 21:04:42 IST 2023 NEUTRAL CITATION C/OJA/13/2019 CAV JUDGMENT DATED: 10/11/2023 undefined affidavit dated 28.02.2012, which reads as under:-
Particulars of payments made towards scheme (Rs. In lacs) Sr. No. Particulars Amount 1 Govt. of Gujarat on account of SBI 227-38 2 State Bank of India 430-90 3 IDBI 15-00 4 ESIC` 19-19 5 Expenses like legal/ professional 81-72 fees, travelling, administrative etc. Total 774-19 [46] Insofar as the dues of workers are concerned, the controversy tried to be generated in which Prasad Mills Kamdar Samiti filed Company Application No.207 of 2014 in the petition seeking to join as party respondent in the petition on the ground that 521 workers of the Company, were not been taken into confidence with regard to the proposed scheme and TLA had filed affidavit without taking then in confidence and before the said application i.e. Company Application No.207 of 2014 could be decided, the Special Leave to Appeal filed by the promoter of the petitioner no.2 was disposed of by Hon'ble Apex Court by recording the statement of learned advocate appearing for such promoter that in view of orders made in S.L.P No.29282-84 of Page 116 of 133 Downloaded on : Fri Nov 10 21:04:42 IST 2023 NEUTRAL CITATION C/OJA/13/2019 CAV JUDGMENT DATED: 10/11/2023 undefined 2008, his petition did not survive and the same had become infructuous. But then, on 01.09.2015, the Hon'ble Apex Court passed a further order in S.L.P. filed by heirs of lessor in which Hon'ble Apex Court expected the High Court to dispose of the main proceeding latest by November, 2015 and it was thereafter, the Company Application filed by Kamdar Samiti, as referred hereinabove, was rejected by the Company Court vide order dated 22.09.2015 and against the said rejection of application, Prasad Mills Kamdar Samiti has filed S.L.P., but no stay was granted against the proceeding of the petition and it was said that at the time when learned Single Judge was heard the said SLP was pending. But then no request was made on behalf of Prasad Mills Kamdar Samiti in any manner as recorded in the order itself, not to proceed with the hearing of the petition on account of pendency of the SLP, and then change has taken place wherein the very 521 workers who were with Kamdar Samiti now have come forward through Ahmedabad Mill Mazdoor Union and has also come forward with notice of intention dated 29.02.2016 addressed to learned advocate Mr. Vakil by indicating that such notice is being given for more than Page 117 of 133 Downloaded on : Fri Nov 10 21:04:42 IST 2023 NEUTRAL CITATION C/OJA/13/2019 CAV JUDGMENT DATED: 10/11/2023 undefined 500 workmen, who are members of the Mazdoor Union, and forwarded their objections in accordance with Rule 34 of the Company Court Rules.
[47] It is also recorded by the learned Single Judge that when the hearing of the petition commenced, as expected by the Hon'ble Apex Court, learned advocate Mr. Vakil appearing for the petitioners, learned advocate Mr. D.S. Vasavda appearing for TLA, learned advocate Mr. Roshan Desai appearing for the Official Liquidator and learned advocate Mr. Mitul Shelat appearing for the Union. However, nobody had appeared before the Court for other parties including one of the agitated stakeholders - Naynaben did not appear as stated by learned advocate appearing for the appellants.
[48] In aforesaid background of facts, it was submitted by learned counsel appearing before the learned Single Judge that all secured creditors voted in favour of the scheme as were fully paid, and so far as workers are concerned, in view of the specific affidavit, as stated above, the meeting was dispensed with the workers and more than 3/4 th majority of shareholders Page 118 of 133 Downloaded on : Fri Nov 10 21:04:42 IST 2023 NEUTRAL CITATION C/OJA/13/2019 CAV JUDGMENT DATED: 10/11/2023 undefined voted in favour of the scheme. The TLA was representing all workers of the company, had given specific consent for approval of the scheme and as such when the scheme contains no provision which runs against the public policy or public interest and the same being genuine and fair even for enhanced benefits of the workers sanctioned of scheme was required to be accepted and categorically it was stated and left it to the Court that if Court finds that the interest of workmen as indicated 521 in numbers is to be taken care of in whatever way, the Court may provide or suggest and for that, expressly, it was stated that the petitioners have no objections if by taking such measure, scheme is approved. This submission is recorded in paragraph 14 in specific terms. Simultaneously, it was also submitted the by virtue of rejection of Company Application No.207 of 2014, the Majdoor Union has no locus-standi to object the scheme on behalf of very same workmen who were represented and given consent and as such when overall interest is kept in mind in the scheme, there is hardly any reason for the learned Single Judge to come to a different conclusion on the basis of mere surmises and conjectures and Page 119 of 133 Downloaded on : Fri Nov 10 21:04:42 IST 2023 NEUTRAL CITATION C/OJA/13/2019 CAV JUDGMENT DATED: 10/11/2023 undefined supportless inferences and as such it was requested to set aside the order.
[49] In respect of one of the objectors - Naynaben, it was clearly narrated that at a relevant point of time, she did not raise objections and then, as an afterthought measure, is trying to put on hold the entire scheme and the said Naynaben had merely five shares. It was also specifically stated that said Naynaben, who was equity shareholder, she consented to the scheme originally and then came out with grievance with in her reply with regard to conducting of meeting by the Chairman. So in substance, said Nayanaben had objected basically against the meeting being conducted, but then, according to appellants, the object of the scheme may not be defeated. So taken such basic pleas, it appears that an inference has been drawn by the learned Single Judge that in substance the scheme has got the effect of valuable land of the Company to be taken away and in reality, the business of the Mill Company would not revive. [50] At this stage, it is not in dispute that over the period of time, a substantive change has taken place in the surroundings Page 120 of 133 Downloaded on : Fri Nov 10 21:04:42 IST 2023 NEUTRAL CITATION C/OJA/13/2019 CAV JUDGMENT DATED: 10/11/2023 undefined of land in question, TP schemes have been introduced and implemented, the plant and machinery were sold away years ago and the area is undisputedly found to be fully developed area whether business of Mills Company can be regenerated or not is the assessment and domain of the majority creditors and shareholders of the Company. The scheme has clearly provided in Clause 5 about business of the Company which has indicated that in contemporary facts and circumstances, the original business of the company i.e. manufacturing of textiles, if not found viable by the company / sponsor, the company shall diversify into such other business activities which may be found suitable, viable and permissible in accordance with the laws of the land. A close perusal of this clause is not remotely indicating that there is inclination to done away with the land in question in any manner. Had there been so intent of disposing of the land itself or any intention of petitioners to grab the land the words could not have been in the manner in which it is incorporated in Clause 5, as indicated above. The basic intention is to diversify such other business activity suitable and viable. It appears that the learned Single Judge has swayed Page 121 of 133 Downloaded on : Fri Nov 10 21:04:42 IST 2023 NEUTRAL CITATION C/OJA/13/2019 CAV JUDGMENT DATED: 10/11/2023 undefined away by earlier circumstance and assumed that somehow appellants want to grab the land of the Company, as indicated in paragraph 30 of the judgment. The scheme has the intention of reviving the business, but on account of change of circumstance if not found viable then intent is to diversify to some other business activity.
[51] If the clause contained in Memorandum of Association particularly Clause 3 which projects the object of the company, one of such object was also permitting to carry on any other business, which clause being relevant, we deem it proper to quote hereunder:-
"(n) To carry on any other business which may seem to the company capable of being conveniently carried on in the connection with the above, or calculated directly or indirectly to enhance the value of, or render profitable any of the Company's property or rights."
[52] So in broad factual matrix if the record indicates that all payments have been made in substantial to the secured creditors including Government debt, the interest of workers is also been taken care of and further precaution if required also assured to be incorporated and in the context if the scheme has Page 122 of 133 Downloaded on : Fri Nov 10 21:04:42 IST 2023 NEUTRAL CITATION C/OJA/13/2019 CAV JUDGMENT DATED: 10/11/2023 undefined ultimately being placed after conducting meetings and after receiving consent from TLA with regard to workers, the inference drawn by the learned Single Judge that appellants ought to grab the land appears to be rather contrary to the record nor visible from any clauses of the scheme and as such, such inference drawn appears to be perverse. The base of the scheme is to take the business or if not possible of regeneration of Mills Business then to diversify such other business which is permissible. So intent to grab the land is not getting substantiated from any corner of plots. Apart from that, so far as workers dues are concerned, though TLA has given consent even independently the appellants ought to protect the interest and take care of the interest of workers. On the contrary, it appears that the workers are trying to change their stand from TLA to Kamdar Samiti then to Mazdoor Union and trying to change the stand from time to time. The controversy has also erupted as to who is now recognized as representative Union, but the fact remains that those 521 workers which are narrated have been in part being paid the amount as indicated to some extent intermittently and with the specific affidavit, it was Page 123 of 133 Downloaded on : Fri Nov 10 21:04:42 IST 2023 NEUTRAL CITATION C/OJA/13/2019 CAV JUDGMENT DATED: 10/11/2023 undefined noticed that meeting of the workers who was dispensed with since TLA was representing and did gave consent in favour of the scheme.
[53] In the light of aforesaid material, it appears that the observations contained in paragraph 14 of the impugned judgment that the secured creditors voted in favour of the scheme were fully paid up, but the same was not the submission of learned advocate for the appellants that the secured creditors who voted at the Court convened meeting were fully paid up. Similarly as observed in paragraph 22 of the impugned judgment that from the years 1988 to 1998 or even till the movable properties were sold, there was no move from anybody for revival of the Company, but the learned Single Judge has lost sight of the fact that there was a specific contention that there is no period of limitation prescribed under the act for the purpose of filing proceedings for revival of the company (in winding-up) and for making proposal for revival of any company in liquidation is not requiring any specific period form the date of winding-up the order.
Page 124 of 133 Downloaded on : Fri Nov 10 21:04:42 IST 2023
NEUTRAL CITATION C/OJA/13/2019 CAV JUDGMENT DATED: 10/11/2023 undefined [54] It further appears that learned Single Judge has failed to appreciate that there was no provision in the Companies Act that if a scheme for revival is proposed in respect of a Company in liquidation whose plant, machinery, building, equipments, superstructure, etc. is sold, no scheme for revival can thereafter be proposed and the learned senior advocate appearing for the appellants has rightly submitted that there is no provision under the Companies Act or otherwise that if revival of a Company in liquidation is proposed, the revival will necessarily have to be of the same business. The scheme was sanctioned by the statutory majority all of whom were conscious of Clause 5 of the scheme and in any case, there was no opposition to the scheme by anybody including the Official Liquidator or the workmen on the ground that Clause 5 of the scheme is inadequate in as much as in the event the company is unable to do the textile business post revival, the scheme has failed to specify the second alternative. In fact, Clause 5 was never objected at a stage where the same was approved and then placed for approval. Page 125 of 133 Downloaded on : Fri Nov 10 21:04:42 IST 2023
NEUTRAL CITATION C/OJA/13/2019 CAV JUDGMENT DATED: 10/11/2023 undefined [55] Apart from this, the substantial apprehension which has been shown about the disposal of the land in question of the Company, it was ought to have been noticed by the learned Single Judge that the company in liquidation was only having leasehold rights over the land and the ownership of the land was not of the company in liquidation and further the scheme did not contemplate divesting of its lease hold rights over the land nor deprive the company in liquidation of such leasehold rights and all the clauses of the scheme, even did not contemplate utilizing such leasehold rights for the purpose of discharging its obligations towards the creditors of the company in liquidation. So apprehension which has been raised about disposal of the land or grabbing the same is out of place looking to the provisions of the scheme.
[56] Yet a further fact has also been lost sight of the learned Single Judge that the company in liquidation was incorporated under the provisions of Companies Act in which there was no distinction like the main objects or the ancillary objects. Clause
(n) of the object clause of the company suitably provided for Page 126 of 133 Downloaded on : Fri Nov 10 21:04:42 IST 2023 NEUTRAL CITATION C/OJA/13/2019 CAV JUDGMENT DATED: 10/11/2023 undefined doing any business for the purpose of which the value of and render profitable any of the properties of the company and that is the reason why Clause 5 appears to have been made out in the scheme which is approved by statutory majority. [57] The overall reading of the clauses of the scheme appears that harsh observations which has been made by the learned Single Judge to done away with the land appears to be out of place from clauses of the scheme and further secured creditors as well as interest of workmen is also being taken care of. So the scheme appears to be not that much apprehensive but the learned Single Judge has concluded. On the contrary, it appears that by virtue of clauses contained in the scheme more particularly Clause 5 is in the overall interest of the creditors and workers concerned and the same found to be just, reasonable and fair and not in conflict with any of the provisions in the act, not does it violate any public policy and as such when the overall interest is taken care of by treading the clauses in scheme which was accepted by majority and further the interest of workers around 521, as indicated above, is taken care of , we Page 127 of 133 Downloaded on : Fri Nov 10 21:04:42 IST 2023 NEUTRAL CITATION C/OJA/13/2019 CAV JUDGMENT DATED: 10/11/2023 undefined see no reason to hold that the scheme runs counter to the public policy or is unjust so apparently arbitrary which may not required any sanction.
[58] At this stage, we may also observe that at a relevant point of time the objections were raised against the scheme for some 521 workmen for whom Prasad Mills Kamdar Samiti had filed Company Application No. 207 of 2014, but while coming to the conclusion, the learned Single Judge appears to have not appropriately construed the provisions of Sections 529, 529A and 530 of the Companies Act which do not enable a workman to have his say on the grievance that his interest was not duly taken care of for determination of his claim of his dues. Further, at any rate no "individual workman" has come forward at the time of hearing before the learned Single Judge making any such grievance and as such when that be so, it does not appear that interest of workmen only at jeopardize at any time. In fact, by virtue of provisions contained under the Companies Act and the same manner that of secured creditors, the interest of workmen would be taken care of and more so when it has Page 128 of 133 Downloaded on : Fri Nov 10 21:04:42 IST 2023 NEUTRAL CITATION C/OJA/13/2019 CAV JUDGMENT DATED: 10/11/2023 undefined been clearly stated by the learned senior advocate appearing on behalf of the appellants and undertaken also that they are ready and willing to take care of the interest of workman in any form while seeing approval of the scheme and for that we are sure that Official Liquidator would also be in a position to take care of the said issue keeping in view the specific assurance recorded of the appellants through the learned senior advocate. [59] Additionally, it appears that some grievance is voiced out at the behest of Naynaben holding a meager amount of shares and the same has been given undue weightage by observing in paragraph 33 of the impugned judgment passed by the learned Single Judge. Firstly, Naynaben herself did not appear at the time of hearing of the Company Petition at a stage where the same was desired. Secondly, none of the parties who were present at the time of hearing of the Company Petition have even remotely referred to the affidavit of Naynaben and as such the reference which has made of Naynaben and her affidavit in the impugned judgment is without putting notice to the appellants for which no opportunity was given. If the stand Page 129 of 133 Downloaded on : Fri Nov 10 21:04:42 IST 2023 NEUTRAL CITATION C/OJA/13/2019 CAV JUDGMENT DATED: 10/11/2023 undefined taken by the said Naynaben perused, even at a initial stage no grievance was voiced out and later on, it appears that as an afterthought measure some objections have been tried to be raised. The conjoint effect of the pleadings including additional affidavit-in-reply filed by the appellants dated 08.05.2019, the chronology whereof would indicate that the scheme floated is not detrimental to the interest of stakeholders and cannot be said that it is highly unfair, unworkable or unreasonable in any form. The clauses contained in the scheme more particularly Clause 5 which is not indicate disposal of the land, as indicated above, but has got a discretion that if the original business is not workable then any other business which may be proposed by the shareholders for commencing new business activity would be left as an alternative and as such the observations made by the learned Single Judge and apprehension voiced of squandering away the land of the company or grabbing the same is appearing to be out of place. On the contrary, the overall interest of secured creditors and and workmen if to be looked into, the scheme deserves to go-on. Further, as indicated above, the learned advocates given assurance to the Page 130 of 133 Downloaded on : Fri Nov 10 21:04:42 IST 2023 NEUTRAL CITATION C/OJA/13/2019 CAV JUDGMENT DATED: 10/11/2023 undefined Court as recorded in later part of paragraph 14 of the judgment that if the Court finds that interest of workmen is to be taken care of in more better way, the Court may provide for the same, to which the petitioners i.e. present appellants will have no objection if the Court is to approve the scheme. So when this stand is being reflecting, the conclusion arrived at by the learned Single Judge and the recorded on internal page 54 of the judgment is out of place and as such the scheme could serve the better interest of all concerned stakeholders and as such the same is not possible to be construed as illegal, unreasonable or unfair nor contrary to any public policy. Hence, overall consideration of the material on record would suggest that approval of the scheme on the contrary would be in the interest of all stakeholders. Hence, Court see no reason not to all the reliefs claimed by the appellants in original petition. [60] In view of the discussion above and in view of the peripheral scope of judicial review on such issues, as discussed above, we are of the opinion that order passed by the learned Single Judge is not sustainable in the eye of law. Hence, we set Page 131 of 133 Downloaded on : Fri Nov 10 21:04:42 IST 2023 NEUTRAL CITATION C/OJA/13/2019 CAV JUDGMENT DATED: 10/11/2023 undefined aside the same hereby and grant the relief seeking approval of the scheme.
[61] In view of the present order having been passed in main O. J. Appeals, the applications which are stated hereinbefore are consigned on record and disposed of accordingly. [62] However, we make it clear that pursuant to this every steps must be of the appellants in the interest of all stakeholders including workmen in specific. [63] With these observations, we allow the appeal. Since main appeal stands allowed, the other cognate Civil Applications stand disposed of.
(ASHUTOSH SHASTRI, J.) (J. C. DOSHI, J.) FURTHER ORDER After pronouncement of the judgment, learned advocate Ms. PJ Davawala one of the contesting respondent has requested that operation of the present order be suspended for Page 132 of 133 Downloaded on : Fri Nov 10 21:04:42 IST 2023 NEUTRAL CITATION C/OJA/13/2019 CAV JUDGMENT DATED: 10/11/2023 undefined some time so as to enable them to approach the higher forum.
Considering the controversy involved and in view of the fact that appeal is of the year 2019, we deem it proper to grant eight weeks time from today. Though, objection is raised by learned counsel appearing for the appellants, but considering the aforesaid circumstances, we deem it proper to grant this reasonable time as stated above and effect of order stands suspended for eight (8) weeks hereafter.
(ASHUTOSH SHASTRI, J) (J. C. DOSHI,J) Dharmendrakumar/phalguni Page 133 of 133 Downloaded on : Fri Nov 10 21:04:42 IST 2023