1999 (3) TMI 540 - HC - Companies Law

Summary

Issues Involved:
1. Whether the applicant constitutes a distinct class of unsecured creditors requiring a separate meeting.
2. The adequacy and accuracy of the explanatory statement and other documents provided by the company (not pressed at this stage).

Detailed Analysis:

Issue 1: Distinct Class of Unsecured Creditors

Leave under rule 19(3) of the Companies (Court Rules), 1959 granted to the petitioners to take out a Judge's summons. The learned counsel for the respondents waive service. By consent, Judge's summons made returnable and heard forthwith.

The applicant, a non-banking finance company, has given machinery/equipment on lease to the respondent-company. The applicant received a notice from the respondent-company for a meeting of unsecured creditors to sanction a scheme of amalgamation. The applicant requested copies of certain documents and clarification on the classification of creditors, which the company failed to provide. The applicant contended that non-banking financial companies are a separate and distinct class of unsecured creditors and should have a separate meeting.

The company argued that the applicant does not constitute a distinct class from other unsecured creditors and that the notice period was abridged as per court order. The company also pointed out that the applicant is the only non-banking financial institution among the unsecured creditors and that their interests are not distinct from other unsecured creditors.

The court examined whether the applicant can be treated as a distinct class by themselves. Section 391 of the Companies Act, 1956 provides for meetings of creditors or classes of creditors for compromise or arrangement. The court noted that a class must be homogeneous in character with special characteristics distinguishing them from others. The applicant must show that their interests are distinct from other unsecured creditors to be considered a separate class.

The court referred to the judgments in Sovereign Life Assurance Co. v. Dodd and D. A. Swamy v. India Meters Ltd., which discussed the criteria for determining distinct classes of creditors. The court concluded that the applicant, being a non-banking financial company with machinery leased to the company, does not have interests distinct enough from other unsecured creditors to constitute a separate class. The court also noted that the scheme of arrangement does not provide for different treatment of the applicant compared to other unsecured creditors.

Therefore, the court rejected the applicant's request for a separate meeting of non-banking financial companies.

Issue 2: Adequacy and Accuracy of Explanatory Statement

The applicant raised concerns about the adequacy and accuracy of the explanatory statement and other documents provided by the company. However, the applicant did not press this contention at this stage and sought liberty to raise it during the hearing of the scheme of amalgamation.

In view of this, the court granted liberty to the applicant to raise the matter at the hearing of the scheme of amalgamation if they are entitled to do so in law.

Conclusion:

The court rejected the application for a separate meeting of non-banking financial companies, concluding that the applicant does not constitute a distinct class of unsecured creditors. The court granted liberty to the applicant to raise concerns about the explanatory statement during the hearing of the scheme of amalgamation.

No order as to costs. Application rejected.