1999 (12) TMI 751 - HC - Companies Law

Issues Involved:

1. Review of the Court's order dated 23-9-1997 sanctioning the Scheme of Compromise and/or arrangement.
2. Non-compliance with mandatory provisions of sections 391 and 394 of the Companies Act, 1956.
3. Non-issuance of notice to secured creditors, unsecured creditors, and shareholders.
4. Breach of the mandatory provisions of rule 80 of the Company Court Rules.
5. Delay in filing the review applications.
6. Inherent powers of the Court under rule 9 of the Company Court Rules.
7. Merits of the scheme and the role of the Court in sanctioning the scheme.

Detailed Analysis:

1. Review of the Court's order dated 23-9-1997:

The applicants sought a review of the Court's order dated 23-9-1997, which sanctioned the scheme proposed by the Engineering Majoor Sangh under sections 391 and 394 of the Companies Act, 1956. The Court segregated the consideration of the first prayer for review from the second prayer regarding action against Mr. K.W. Desai.

2. Non-compliance with mandatory provisions of sections 391 and 394 of the Companies Act, 1956:

The scheme was presented under section 391(1), read with section 394. The Court highlighted that the scheme affected various classes of creditors and shareholders, and separate meetings for each class were mandatory under section 391(1). The Union confined its request to convene a meeting of only the workers, thus failing to comply with the statutory requirements.

3. Non-issuance of notice to secured creditors, unsecured creditors, and shareholders:

The applicants argued that no meetings of secured creditors, unsecured creditors, or shareholders were convened, nor were they given any notice of the Company Petition No. 224 of 1996. The Court found this to be a breach of the mandatory provisions, as the scheme affected these parties, and they were entitled to be heard.

4. Breach of the mandatory provisions of rule 80 of the Company Court Rules:

Rule 80 mandates that notice of the hearing of the petition must be advertised. The Court noted that no such notice was published, which deprived the affected parties of the opportunity to oppose the scheme. This non-compliance with rule 80 was a significant error.

5. Delay in filing the review applications:

The Court addressed the preliminary objection regarding the delay in filing the review applications. It observed that the order was passed without issuing any notice, and the affected parties could not have known about it immediately. The applications were filed within a reasonable time after the parties became aware of the order.

6. Inherent powers of the Court under rule 9 of the Company Court Rules:

The Union argued that the Court had inherent powers under rule 9 to sanction the scheme without issuing notice. However, the Court clarified that rule 9 does not override the mandatory provisions of section 391. The inherent powers cannot be exercised in derogation of express statutory provisions.

7. Merits of the scheme and the role of the Court in sanctioning the scheme:

The Court emphasized that its role is not to evaluate the merits of the scheme but to ensure compliance with statutory procedures. The scheme must be approved by the affected classes of creditors and members. Since the mandatory provisions were not followed, the order dated 23-9-1997 was vitiated by errors of law.

Conclusion:

The Court recalled the order dated 23-9-1997 in Company Petition No. 224 of 1996 due to non-compliance with sections 391 and 394 and rule 80 of the Company Court Rules. The Company Petition No. 224 of 1996 was dismissed. The issue of whether any action should be taken against Mr. K.W. Desai and the question of costs were deferred to the next hearing. The Court observed that Mr. K.W. Desai wasted judicial time by persisting with untenable arguments.

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