2005 (7) TMI 363 - HC - Companies Law

Summary

Issues Involved:
1. Disqualification of directors under section 274(1)(g) of the Companies Act, 1956.
2. Validity of the scheme of arrangement/compromise proposed by the applicant-company.
3. Jurisdiction and powers of the Court under sections 391 and 392 of the Companies Act, 1956.
4. Interpretation of statutory provisions and mandatory nature of section 274(1)(g).

Detailed Analysis:

Disqualification of Directors under Section 274(1)(g):
The applicant, Essar Oil Ltd., sought a declaration that its directors should not be disqualified under section 274(1)(g) of the Companies Act, 1956. This section states that a person cannot be appointed as a director if they are already a director of a public company that has failed to repay deposits, redeem debentures, or pay dividends for over a year. The applicant argued that if the scheme is sanctioned, the debenture redemption date would change, avoiding disqualification. However, the Court found that the directors would be disqualified due to the company's failure to redeem debentures on the due date, and this disqualification could not be postponed based on hypothetical future events.

Validity of the Scheme of Arrangement/Compromise:
The applicant-company proposed multiple schemes of arrangement/compromise with its debenture holders and filed several applications for their approval. Despite some schemes being approved, the scheme concerning debenture holders with more than 2,000 debentures was not approved. The company then proposed a new scheme and sought to convene meetings for its approval. The Court noted that this attempt seemed to delay or avoid the hearing of the scheme, and thus, the protection granted to the company was withdrawn.

Jurisdiction and Powers of the Court under Sections 391 and 392:
The applicant argued that the Court has the inherent power to issue directions for the proper implementation and working of a compromise or arrangement. However, the opposing party contended that section 274 is mandatory and the Court does not have the power to postpone or waive the disqualification of directors. The Court agreed with the opposing party, stating that it must interpret the statutory provisions strictly and that the disqualification under section 274(1)(g) is mandatory and cannot be postponed or waived by the Court.

Interpretation of Statutory Provisions and Mandatory Nature of Section 274(1)(g):
The Court emphasized that section 274(1)(g) is clear and unambiguous, and its mandatory nature must be upheld. The Court referred to various judgments to support the view that statutory provisions must be interpreted based on their plain language and legislative intent. The Court rejected the applicant's argument that the scheme's potential approval could change the redemption date and avoid disqualification, stating that the law does not allow for such hypothetical considerations.

Conclusion:
The Court rejected the application, affirming that the directors of the applicant-company would be disqualified under section 274(1)(g) due to the company's failure to redeem debentures on the due date. The Court also highlighted that the statutory provisions are mandatory and cannot be altered based on hypothetical future events or assumptions. The application was dismissed without any order as to costs.