Punjab-Haryana High Court
Alpha Corp. Development Pvt. Ltd vs Euthoria Developers Pvt. Ltd on 31 March, 2017
Bench: S.J. Vazifdar, Anupinder Singh Grewal
IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH
CAPP No.2 of 2017 (O&M)
DATE OF DECISION: 31.03.2017
In the matter of:
Alpha Corp Development Private Limited
And
Euthoria Developers Private Limited ....Appellants
CORAM:- HON'BLE MR.JUSTICE S.J. VAZIFDAR, CHIEF JUSTICE
HON'BLE MR. JUSTICE ANUPINDER SINGH GREWAL
Present: Mr. Santosh Agarwal, Chief Financial Officer and
Constituted Attorney, for Alpha Corp. Development
Private Limited, in person
Mr. D.K. Singh, Official Liquidator
..
S.J. VAZIFDAR, CHIEF JUSTICE (Oral):
This is an appeal against the order of the learned single Judge declining to consider the appellants' petition for sanctioning a Scheme of Arrangement under sections 391 and 394 of the Companies Act, 1956, on the ground that the proceedings are liable to be transferred to the National Company Law Tribunal, Chandigarh Bench, Chandigarh, (NCLT) in view of Notification No.GSR 1119(E) dated 07.12.2016 issued by the Ministry of Corporate Affairs.
2. We permitted the constituted attorney of the appellant to address us, although there is an Advocate on record, as the Advocates have abstained from appearing in Court today and in view of the appellant's contention that there is extreme urgency in the matter. The urgency is this. If the Scheme of Arrangement is liable to be sanctioned but is sanctioned only after today i.e. 31.03.2017, the appellant would lose the benefit of the Double Taxation Avoidance Agreements with Singapore and Mauritius. In view 1 of 13 ::: Downloaded on - 09-04-2017 05:40:17 ::: CAPP-2-2017 - 2 -
of this contention, we circulated the matter yesterday for today provided that notice was given to the Regional Director. The Regional Director appeared today and addressed us.
3. We will refer to the details of the Scheme later after dealing with the impugned judgment. Suffice it to note, at this stage, that the Scheme involves the hiving off a mall owned by the first appellant, namely, Alpha Corp Development Private Limited and transferring the same to the second appellant- Euthoria Developers Private Limited. The Scheme also contemplates the transfer of shares held by the first appellant in Ruchi Malls Private Limited to the second appellant. The first appellant is, therefore, the transferor or the demerged company and the second appellant is the transferee or the resulting company.
4. The Regional Director raised a preliminary objection to the effect that the matter should now stand transferred to NCLT. The learned Judge upheld this contention. The facts relevant for this purpose are these:
(A) Firstly, it is important to note that the appellants had filed a composite petition. In the first part, the appellants sought an order dispensing with the requirement of convening meetings of the shareholders and the secured and unsecured creditors of the demerged and the resulting companies and an order dispensing with the requirement of publication of notice of the meeting in the newspapers and in the official gazette in the State of Punjab. In the alternative to this, the appellants sought directions for convening such meetings and for publication. In the second part of this composite petition, the appellants prayed that 2 of 13 ::: Downloaded on - 09-04-2017 05:40:18 ::: CAPP-2-2017 - 3 -
the petition be treated a second motion petition for sanction of the Scheme of Arrangement and directions for service of notice of the petition to the Central Government, Ministry of Corporate Affairs and for the publication of the notice of the petition in the newspapers and in the official gazette.
(B). An order of the learned Company Judge dated 25.10.2016 (wrongly mentioned as 25.10.2017) stated: "Arguments heard. Judgment reserved."
On 19.01.2017, the judgment was pronounced. The learned Company Judge referred to the Scheme in detail including that the consent of all the equity shareholders and the secured creditors had been obtained, that 15 out of 16 unsecured creditors had given their consent to the proposed scheme and noted that there was no secured creditor of the Resulting Company. The learned Judge issued notices to the Regional Director and the Official Liquidator returnable on 03.03.2017 and issued directions for the publication of the notices in newspapers and in the Government gazette.
(C) On 03.03.2017, the Regional Director filed an affidavit. We will refer to the affidavit while dealing with the application on merits. As an advance copy may have been furnished, the appellant filed a rejoinder on the same day.
(D) On 03.03.2017, the learned Judge passed the following order: "For consideration regarding transfer of the case to NCLT, Chandigarh Bench, Chandigarh, now to come up on 17.03.2017. On 17.03.2017, the petition was adjourned to 24.03.2017 at the appellants' requests.
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The learned Judge passed the following order on
24.03.2017:-
"As per the notification dated 07.12.2016 issued by the Ministry of Corporate Affairs under section 434(1)(c) of the Companies' Act, 2013, the company matters mentioned therein, are required to be transferred to the National Company Law Tribunal. The present joint petition under Section 391-394 read with Section 100-103 of the Companies' Act, 1956 for de- merger of the mall undertaking, could have also been transferred but perusal of the order sheets reflect that the matter was heard on 25.10.2016 and order was reserved.
In view of said circumstances, the present petition would fall under the exceptions wherein it is provided that the proceedings relating to cases other than winding up that are reserved for orders for allowing or otherwise would be proceeded with by the High Courts.
As the arguments were heard and matter was reserved by the Coordinate Bench, in the interest of justice, the matter be listed before the Hon'ble Mr. Justice R.K. Jain after obtaining orders of Hon'ble the Chief Justice on 27.03.2017 as the counsel for the petitioner has insisted that adjudication of the matter after 31.03.2017 may warrant financial complications."
5. It is important to note that in the above order the learned Judge held that the petition would fall under the exceptions and must, therefore, be retained by this Court and not be transferred to the NCLT. The learned Judge, however, under the impression, mistaken we will presume, observed that the judgment as to the final directions had been reserved on 25.10.2016 and, therefore, ordered it to be placed before the learned Judge who passed the order dated 25.10.2016. That is how the matter was placed before the learned Judge who passed the impugned order dated 29.03.2016.
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6. The learned Judge, by the impugned order, held that on 24.03.2017 the case was transferred to him on the ground that the order was reserved by him, whereas, the reserved order was pronounced on 19.01.2017.
7. We must proceed on the basis that what was reserved on 25.10.2016 was the petition at the stage of considering whether or not the meetings of the shareholders and of the secured and unsecured creditors ought to be dispensed with or not. The fact, however, is that the judgment on the petition in this aspect was, in fact, reserved. Further, so far as that aspect of the matter is concerned, namely, dispensation of the meetings, it was final.
8. The learned Judge referred to the said notification dated 07.12.2016. By the notification dated 07.12.2016, the Central Government made The Companies (Transfer of Pending Proceedings) Rules, 2016. Under section 1(2), the rules were to come into force with effect from 15.12.2016 except rule 4 with which we are not concerned. Rule 3 reads as under:-
"3. Transfer of pending proceedings relating to cases other than Winding up.- All proceedings under the Act, including proceedings relating to arbitration, compromise, arrangements and reconstruction, other than proceedings relating to winding up on the date of coming into force of these rules shall stand transferred to the Benches of the Tribunal exercising respective territorial jurisdiction:
Provided that all those proceedings which are reserved for orders for allowing or otherwise of such proceedings shall not be transferred."
9. On 07.12.2016, the Central Government made The Companies (Removal of Difficulties) Fourth Order, 2016. Under section 1(2), the order was to come into force with effect from 15.12.2016. The 5 of 13 ::: Downloaded on - 09-04-2017 05:40:18 ::: CAPP-2-2017 - 6 -
recitals which precede the Order and are relevant for the present purpose read as under:-
"And, whereas, difficulties have arisen regarding continuation of provisions of the 1956 Act for (i) those proceedings relating to cases other than winding-up that are reserved for orders for allowing or otherwise and (ii) those winding up cases which would not be transferred to Tribunal and be proceeded with by High Courts on account of commencement of the corresponding provisions under the 2013 Act or under the Code;
And, whereas, difficulties have also arisen regarding transfer of proceedings relating to cases other than winding-up where hearings have been completed and only pronouncement of order is pending or is reserved since their transfer to Tribunal may result into delay and rights of parties to the proceedings are likely to be affected prejudicially;"
Clause 2 (i) reads as under:-
"2. In the Companies Act, 2013, in Section 434, in sub-section (1), in clause (c), after the proviso, the following provisos shall be inserted, namely:-
"Provided further that only such proceedings relating to cases other than winding-up, for which orders for allowing or otherwise of the proceedings are not reserved by the High Courts shall be transferred to the Tribunal:
Provided further that-
(i) all proceedings under the Companies Act, 1956 other than the cases relating to winding up of companies that are reserved for orders for allowing or otherwise such proceedings; or ...... ..... ..... ...... ...... ...... .......
shall be dealt with in accordance with provisions of the Companies Act, 1956 and the Companies (Court) Rules, 1959".
10. The learned Judge held that upon pronouncement of the order dated 25.10.2016, no order was reserved by this Court and, as a result thereof, this matter cannot be retained by the High court. The learned Judge observed that under the aforesaid notification this Court has jurisdiction for passing an order only in a case 6 of 13 ::: Downloaded on - 09-04-2017 05:40:18 ::: CAPP-2-2017 - 7 -
which has been reserved by it. There are certain important aspects of this issue regarding the aforesaid notification which were probably not brought to the notice of the learned Judge. Firstly, it must be noted that this was a composite petition for directions and for the sanction of the Scheme of Arrangement. There has been no objection to the maintainability of a composite petition. In other words, it was not contended before either the learned Company Judge or before us that it was necessary to first file a petition and to seek orders for holding meetings or dispensing with the meetings of shareholders, creditors and others and thereafter file a separate petition seeking a sanction of the Scheme. We proceed on the basis, therefore, that this is a composite petition and cannot be considered as two separate petitions.
11. Rule 3 stipulates that the proceedings, such as these for reconstruction shall stand transferred to the Benches of the Tribunal. The proviso to this rule, however, stipulates that the proceedings which are reserved for orders for allowing or otherwise of such proceedings shall not be transferred. Thus, where a petition seeks only one relief, the situation would be clear. It is only if the final order is reserved that the proceedings stay with the High Court and shall not be transferred to the Tribunal. The case before us, however, is one of a composite petition. The Central Government which made the order i.e. The Companies (Removal of Difficulties) Fourth Order, 2016, was aware that such composite petitions are filed in some courts and at least in this Court. It was not suggested otherwise by the Regional Director. Despite the same, the order does not state in absolute terms that "pending proceedings" shall stand transferred. Nor does it state that the 7 of 13 ::: Downloaded on - 09-04-2017 05:40:18 ::: CAPP-2-2017 - 8 -
proceedings shall be transferred though orders regarding a part of the proceedings are reserved but orders regarding a part of the proceedings are not reserved. If the intention was to transfer all proceedings including composite petitions where orders as to a part are reserved, the language of the order would have been entirely different. In that event, the Central Government would have made it clear that even such proceedings shall stand transferred. The effort of the Central Government was, in fact, to remove difficulties which is obvious from the title of the Order, namely, The Companies (Removal of Difficulties) Fourth Order, 2016. From the facts that we have narrated, it is clear that on 25.10.2016, a judgment was reserved in respect of a part of this composite petition by which the appellants had sought directions dispensing with the meetings of shareholders and creditors, secured and unsecured and, in the alternative, a direction for holding such meetings. The proceedings for such scheme contemplate this stage as a separate stage in themselves without obtaining orders in this respect. Prior to this, the matter cannot proceed to the next stage, namely, presenting a petition for sanction of the scheme.
12. The aforesaid rule and the orders were to come into force only on 15.12.2016 and on that date the judgment had already been reserved on 25.10.2016, albeit of one part of the petition. This approach would, in fact, also be more convenient rather than a part of the Scheme of Arrangement being considered by the High Court and a part of it being considered by the NCLT in case where a composition petition is filed.
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13. In the circumstances, the impugned judgment is set aside. It is held that the petition is not liable to be transferred from this Court to the NCLT.
14. We could and in the normal course probably would have remanded this matter to the learned Company Judge for considering this application for sanction of the Scheme of Arrangement on merits. However, in view of the urgency expressed by the appellants and noted by us above and in view of the fact that the appellants have been pursuing this matter diligently and the hearing of the petition was not delayed due to the appellants' fault and in view of the other facts and circumstances of this case which we will now refer to, the ends of justice require that we must consider the application ourselves. While we intend sanctioning the scheme, we have provided all the necessary safeguards as well.
15. We mentioned earlier that the scheme is one for demerger and merger. The first appellant is the demerged or transferor company and the second appellant is the resultant or transferee company. There does not appears to be any substantial controversy so far as the third parties rights are concerned. The controversies indicated from the papers and proceedings are not substantial and we intend safeguarding the rights of the parties concerned fully. Both the appellants are closely held companies and all the share holders have approved the scheme. All the secured creditors of the first appellant have approved the scheme. There are no secured creditors of the second appellant. 15 out of the 16 unsecured creditors of demerged company have approved the scheme. Only one of the unsecured creditors of the demerged company of the value of about Rs.15 lacs has neither consented to nor opposed to the 9 of 13 ::: Downloaded on - 09-04-2017 05:40:18 ::: CAPP-2-2017 - 10 -
scheme. The appellants contend that the creditors have now no claim as the entire claims have been satisfied. In any event the rights, if any, of the solitary unsecured creditor are safeguarded by the undertaking on behalf of the appellants that both the appellants shall be responsible for and liable in respect of the claims of that unsecured creditor jointly and/or severally. The undertaking is accepted and it is so ordered by us as well. The failure to make good the undertaking would, apart from anything else, also constitute contempt of this Court.
16. We are informed that a caveat has been filed by Alpha Pacific Engineers Private Limited, a contractor of the demerged company but by an order dated 24.10.2016 the learned Company Judge held the same to be contrary to the rules and therefore, dismissed the caveat application. We are informed that no appeal against that order has been filed. Nevertheless we intend safeguarding the interest of the caveator, if any, by accepting the undertaking on behalf of the appellants that both the appellants shall be jointly and/or severally responsible for the claims of the caveator, if any.
17. We further intend granting the caveator and the unsecured creditors of the demerged company, referred to earlier, liberty to move an application either for review/recall of this order and judgment or for securing the claims, if any, effectively.
18. All other requirements statutory and procedural have been complied with after the order dated 19.01.2017 dispending with the meeting of the share holders and the secured and unsecured creditors. The notices were published in the newspapers and the gazette. No party has opposed the scheme except as stated above.
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19. In view of these facts we are satisfied that the rights of third parties are not effected by the scheme of arrangement. Nor are they affected by this order. If for any reason they are affected by this order, we have reserved to them the right to seek a modification or a review/recall of this order.
20. This brings us to the objections raised by the Regional Director on-merits. The Regional Director does not controvert what is stated above. The Regional Director, in fact, states that he has informed the Income Tax Department about these proceedings but has not received any comments/observations from the Income Tax Department.
The Regional Director in paragraph-7 of his affidavit requires the appellant to comply with the provisions of the Foreign Exchange Management Act, 1999 (FEMA)and the Reserve Bank of India (RBI). Needless to state that the appellants are bound and liable to comply with all the requirements of law including of the FEMA and RBI.
21. In paragraph-11 the Regional Director requires the appellants to comply with all the relevant accounting standards issued by the Institute of Chartered Accountants of India (ICAI). The appellants contend that there are no accounting standards issued by the ICAI in respect of the demerger although they are stipulated in respect of the merger. In any event, it is ordered and directed that the appellants shall comply with the accounting standards, if any, issued by the ICAI even in respect of the demerger. The Regional Director has also referred to the objections raised by the said caveator. We have already dealt with the same.
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22. In the circumstances, the appeal is disposed of by the following order:-
i) The scheme of arrangement (Annexure P-1) is sanctioned.
ii) The appellants are directed to file a copy of this order along with a copy of the Scheme with the concerned Registrar of Companies, electronically, along with E-Form INC 28 in addition to physical copy as per the relevant provisions of the Companies Act, 1956.
iii) Each of the appellants to pay costs of Rs.50000/- each to the Regional Director, Northern Region, Noida by 30th April, 2017.
iv) The sanction of the scheme and copies of this order be published in the Financial Express (English) and Jagbani (Punjabi) newspapers, both Punjab Editions and in the Official Gazette of the Government of Punjab.
v) Filing and issuance of the drawn up order is dispensed with.
vi) All concerned authorities to act on a copy of
this order alongwith Scheme and form of
Minutes duly authenticated by the Reader of this Court.
vii) The appellants shall comply with all the statutory and other requirements consequent to and in connection with this order.
viii) In addition thereto, the appellants shall serve a copy of this order and judgment upon 12 of 13 ::: Downloaded on - 09-04-2017 05:40:18 ::: CAPP-2-2017 - 13 -
the caveator, namely, M/s Alpha Pacific Engineers Private Limited, who had filed this caveat.
(ix) It is clarified that it would be open to any party aggrieved by this order to file an application for modification, review/recall of this order.
(x) For a period of 12 weeks from the service of this order upon the caveator aforesaid, the appellants shall not dispose of, alienate, encumber or part with possession and or create any third party rights in respect of their immovable properties without the leave of the Court.
Copy dasti under the signatures of the Bench Secretary.
(S.J. VAZIFDAR) CHIEF JUSTICE (ANUPINDER SINGH GREWAL) JUDGE 31.03.2017 parkash NOTE:
Whether speaking/non-speaking: Speaking Whether reportable: YES/NO 13 of 13 ::: Downloaded on - 09-04-2017 05:40:18 :::