2002 (4) TMI 864 - HC - Companies Law

Summary

Issues Involved:
1. Whether the scheme of reconstruction-cum-family arrangement was sanctioned in compliance with the provisions of Section 391 of the Companies Act.
2. Whether the transposition of the sixth respondent as an appellant should be permitted.
3. Whether the learned Company Judge erred in sanctioning the scheme without hearing all related company petitions.
4. Whether the scheme was in the best interest of the company and its stakeholders.
5. Whether the appeal filed by Smt. Rajni Sanghi was valid.

Issue-wise Detailed Analysis:

1. Compliance with Section 391 of the Companies Act:
The primary issue was whether the scheme of reconstruction-cum-family arrangement was sanctioned in compliance with Section 391 of the Companies Act. The court observed that there was a significant non-compliance with sub-clause (1) of Section 391, which requires convening a meeting of the shareholders and creditors of the company. The learned Company Judge did not satisfy himself about the bona fides of the persons presenting the scheme. The court noted that the scheme did not contain any mention of the meeting of shareholders/creditors or the passing of a resolution by the company for approval of the scheme. The court emphasized that the jurisdiction of the court transcends merely registering the decision of the majority and must ensure that the scheme is fair, reasonable, and in the best interest of the company and its stakeholders.

2. Transposition of the Sixth Respondent as an Appellant:
The sixth respondent, Vijay Kumar Sanghi, sought to be transposed as an appellant after the original appellant, Mahendra Kumar Sanghi, sought to withdraw his appeal. The court held that Vijay Kumar Sanghi had a direct interest in the proceedings, as evident from his involvement in the original proceedings as respondent No. 6. The court ruled that he satisfied the test of a "person aggrieved" and thus had the locus standi to be transposed as an appellant. The court cited precedents to support the view that transposition should be permitted to avoid multiplicity of proceedings and to ensure complete adjudication upon the question involved.

3. Hearing of All Related Company Petitions:
Smt. Rajni Sanghi contended that her company petition and that of her minor daughter were directed to be heard along with the instant company petition, but the learned Company Judge sanctioned the scheme without hearing these petitions. The court found substance in her contention, noting that the learned Company Judge sanctioned the scheme without placing the other petitions on board. This omission violated the principles of natural justice and warranted setting aside the sanctioned scheme.

4. Best Interest of the Company and Stakeholders:
The court scrutinized whether the scheme was in the best interest of the company and its stakeholders. Serious allegations of mismanagement and misappropriation of company funds were raised. The court observed that the scheme's terms, such as the transfer of valuable property at a gross undervaluation, were questionable. The court emphasized that it is the duty of the court to ensure that the scheme is fair, reasonable, and not prejudicial to any class of stakeholders.

5. Validity of Smt. Rajni Sanghi's Appeal:
Smt. Rajni Sanghi's appeal was based on the ground that the scheme was sanctioned without hearing her petition and without bringing the legal representatives of her deceased husband on record. The court found merit in her appeal, noting that the learned Company Judge's failure to hear all related petitions and to ensure proper representation of all parties concerned violated the principles of natural justice.

Conclusion:
The court allowed the appeals, set aside the order of the learned Company Judge sanctioning the scheme, and remitted the matter for reconsideration in accordance with the law. The court directed that the learned Company Judge should proceed with the matter, ensuring compliance with the provisions of Section 391 of the Companies Act and considering the interests of all stakeholders. No order as to costs was made.