2004 (3) TMI 424 - HC - Companies Law

Summary

Issues Involved:
1. Interpretation of sub-section (2) of section 391 of the Companies Act, 1956.
2. Determination of whether the requisite majority for approving a compromise or arrangement under section 391(2) should be based on the total value of creditors/shareholders or only those present and voting.

Detailed Analysis:

1. Interpretation of Sub-section (2) of Section 391 of the Companies Act, 1956:

The core issue in this case was to interpret sub-section (2) of section 391 of the Companies Act, 1956. This provision states that if a majority in number representing three-fourths in value of the creditors or members present and voting at the meeting agree to any compromise or arrangement, it shall be binding on all creditors or members and the company, if sanctioned by the court. The interpretation focused on whether the "three-fourths in value" referred to the total value of all creditors/members or just those present and voting.

2. Determination of Requisite Majority:

The court had to determine if the requisite majority for approving a compromise or arrangement under section 391(2) should be based on the total value of creditors/shareholders or only those present and voting.

Arguments Presented:

- Petitioners' Argument:
- The petitioners argued that the majority should be calculated based on those present and voting, not the total value of all creditors/shareholders. They cited the Calcutta High Court judgment in Hindustan General Electric Corpn. Ltd., which held that the majority in value must be of those present and voting.
- They also referred to the historical context of the provision under the Indian Companies Act, 1913, and similar provisions in English law, which supported their interpretation.
- They highlighted practical difficulties in achieving a three-fourths majority of the total value in large public companies with numerous shareholders.

- Amicus Curiae's Submission:
- The amicus curiae supported the petitioners' interpretation, emphasizing that the words "present and voting" should not be rendered redundant.
- They pointed out that the provision aims to safeguard the interests of creditors/shareholders by requiring a substantial majority of those participating in the decision-making process.
- They cited various legal texts and precedents, including Buckley on the Companies Acts, Palmer's Company Law, and Gower's Principles of Modern Company Law, which interpreted similar provisions to mean the majority of those present and voting.

Court's Analysis:

- The court examined the language of section 391(2) and concluded that it is unambiguous. The majority in number representing three-fourths in value should be calculated based on those present and voting.
- The court referred to the Supreme Court's interpretation of similar language in constitutional provisions, which supported this view.
- The court noted that interpreting the provision to mean the total value of all creditors/shareholders would make the words "present and voting" redundant and render the provision unworkable in large companies.

Conclusion:

The court held that for the purposes of section 391(2) of the Companies Act, 1956, the requirement of a three-fourths majority should be calculated based on the value of shares/credits represented by the creditors/shareholders who are present and voting at the meeting. The contrary view expressed in Euro Cotspin Ltd. was deemed incorrect. The reference was answered in these terms, and the petitions were to be placed before the company judge for disposal in light of these findings.