2000 (12) TMI 851 - HC - Companies Law

Summary

Issues Involved:
1. Whether notice to the Central Government under section 394A of the Companies Act, 1956, is required for both the first application under section 391(1) for convening a meeting and the second application under section 391(2) before sanctioning the compromise or arrangement.

Issue-wise Detailed Analysis:

1. Conflicting Judicial Views:
The necessity of notice to the Central Government arose due to conflicting views by different judges. Y.K. Sabharwal, J. in Jindal (India) Ltd. held that notice to the Central Government is necessary before making any order under section 391(1). Conversely, P.K. Bahri, J. in Mohan Exports India Ltd. held that no notice is required at the initial stage of convening meetings under section 391(1).

2. Applicant's Request and Legal Provisions:
The applicant company filed an application under sections 391(1) and 393, seeking directions for holding meetings of equity shareholders and creditors. The question was whether notice should be given to the Central Government at this stage, considering section 394A. Sections 391 and 393 detail the process for compromises or arrangements with creditors and members and the necessary information to be provided.

3. Historical Judicial Interpretations:
- Calcutta High Court (Bangeshwari Cotton Mills Ltd.): Held that notice to the Central Government is not required at the initial stage under section 391(1). Notice under section 394A is meant for the final order under section 391(2).
- Madras High Court (W.A. Beardsell & Co. (P.) Ltd.): Supported the view that notice to the Central Government is only necessary when the final proposal is brought before the court for sanction.
- Allahabad High Court (Hind Auto Industries Ltd.): Took a different stance, holding that notice to the Central Government and shareholders is necessary at the initial stage under section 391(1).

4. Delhi High Court's Divergent Views:
- Y.K. Sabharwal, J. (Jindal (India) Ltd.): Followed the literal interpretation, agreeing with Hind Auto Industries Ltd., that notice under section 394A is required for applications under section 391(1).
- P.K. Bahri, J. (Mohan Exports India Ltd.): Followed the Madras High Court's view, not requiring notice at the initial stage.

5. Analysis of Legislative Intent:
- Statement of Objects and Reasons: Used to understand the background and the evil the statute sought to remedy. The purpose of section 394A was to enable the Central Government to study the proposal and raise objections before any final order on the compromise or arrangement.
- Rules 67, 68, and 71 of the Companies (Court) Rules, 1959: Indicate that applications under section 391(1) for convening meetings should be moved ex parte, suggesting that notice to the Central Government at this stage is unnecessary.

6. Court's Conclusion:
The court agreed with the views expressed in Bangeshwari Cotton Mills Ltd. and W.A. Beardsell & Co. (P.) Ltd., holding that notice under section 394A should be given only when the final proposal is brought before the court for sanction under section 391(2) or section 394. The court concluded that the Central Government's role is to provide input on the final proposal, not the preliminary steps of convening meetings.

7. Final Decision:
Notice to the Central Government is required only for applications under section 391(2) or section 394, not for the initial application under section 391(1) for convening meetings of creditors and members.

Reference Answered:
The reference was answered by stating that notice to the Central Government is not required at the initial stage of an application under section 391(1) but is necessary for applications under section 391(2) or section 394.