2004 (3) TMI 427 - HC - Companies Law

Summary

Issues Involved:
1. Interpretation of sub-section (2) of section 391 of the Companies Act, 1956.
2. Whether the majority in number as envisaged in sub-section (2) of section 391 should represent three-fourths of the value of total creditors/shareholders or of the value of creditors/shareholders actually present and voting in the meeting.

Detailed Analysis:

1. Interpretation of sub-section (2) of section 391 of the Companies Act, 1956:
The court was called upon to interpret sub-section (2) of section 391 of the Companies Act, 1956, to determine whether the majority required should be of the total value of creditors/shareholders or of those present and voting at the meeting. Sub-section (2) of section 391 states:
"If a majority in number representing three-fourths in value of the creditors, or class of creditors, or members, or class of members, as the case may be, present and voting either in person or, where proxies are allowed under the rules made under section 643, by proxy, at the meeting, agree to any compromise or arrangement, the compromise or arrangement shall, if sanctioned by the Court, be binding on all the creditors, all the creditors of the class, all the members or all the members of the class, as the case may be, and also on the company, or in the case of a company which is being wound up, on the liquidator and contributories of the company."

2. Whether the majority in number as envisaged in sub-section (2) of section 391 should represent three-fourths of the value of total creditors/shareholders or of the value of creditors/shareholders actually present and voting in the meeting:
The court examined various arguments and precedents to interpret the provision:
- Petitioners' Arguments:
- The petitioners argued that the provision requires approval by a majority in number of those present and voting, representing three-fourths in value of those present and voting. They contended that if the intention was to have a majority of the total value, the provision would have been worded accordingly.
- They cited the old Indian Companies Act, 1913, and the English Companies Act, 1948, which had similar provisions interpreted to mean the majority of those present and voting.
- They referenced several legal texts and judicial decisions, including Hindustan General Electric Corpn. Ltd., In re AIR 1959 Cal. 679, and Kirloskar Electric Co. Ltd., In re [2003] 116 Comp. Cas. 413, which supported their interpretation.
- Amicus Curiae's Arguments:
- The Amicus Curiae supported the petitioners' interpretation, emphasizing that the provision should be interpreted to mean the majority of those present and voting to avoid rendering the words "present and voting" redundant.
- They pointed out practical difficulties in requiring a majority of the total value in large public companies with numerous shareholders spread across the country.
- Court's Analysis:
- The court noted that the language of section 391(2) is unambiguous and a plain reading shows that the majority in number should represent three-fourths in value of those present and voting.
- The court referred to the principles of statutory interpretation, emphasizing that words in a statute should not be rendered redundant or meaningless.
- The court cited several precedents and legal texts, including decisions under the English Companies Act, which supported the interpretation that the majority required is of those present and voting.
- The court also referenced Article 368 of the Constitution of India and its interpretation in Sajjan Singh v. State of Rajasthan AIR 1965 SC 845, which supported the interpretation of "present and voting" to mean those physically present and voting.

Conclusion:
The court concluded that the requirement of majority under section 391(2) of the Companies Act, 1956, relates to the value of shares/credits represented by the persons who are present and voting at the meeting, either in person or by proxy. The contrary view expressed in Euro Cotspin Ltd., In re C.P. No. 324 of 2002, dated 11-7-2003, was not correct. The court emphasized that interpreting the provision to require a majority of the total value would render the words "present and voting" redundant and make the provision unworkable in practical terms.