2008 (12) TMI 399 - SC - Companies Law

Whether an application filed by the Company under section 391(1) of the Companies Act 1956 seeking directions to convene a meeting of creditors and members to consider a scheme of amalgamation is required to be heard and decided ex parte as per Rule 67 of the Companies (Court) Rules 1959? Held that - Appeal allowed. From a bare reading of that judgment the said case related to interpretation of section 394A of the Companies Act with which we are not concerned in this case. Be that as it may there are observations in the said judgment with respect with which we do not agree both on the interpretation of Rules 67 and 69 on one hand as also on the basis of the practical effect of the interpretation given by the High Court in the present case. If at the threshold stage of directions to convene a meeting hearing is required to be given to the members as held in the impugned judgment the scheme of the Companies (Court) Rules 1959 will become unworkable.

Summary

Issues Involved
1. Whether an application filed under section 391(1) of the Companies Act, 1956 for convening a meeting of creditors and members to consider a scheme of amalgamation needs to be heard and decided ex parte as per Rule 67 of the Companies (Court) Rules, 1959.

Detailed Analysis

Issue 1: Ex Parte Hearing of Application under Section 391(1)
The primary question in these Civil Appeals is whether an application under section 391(1) of the Companies Act, 1956, seeking directions to convene a meeting of creditors and members for considering a scheme of amalgamation, should be heard and decided ex parte as per Rule 67 of the Companies (Court) Rules, 1959.

Relevant Rules and Forms:
- Rule 2(9): Defines 'Judge's summons' as a summons returnable before the Judge in Chambers or in Court.
- Rule 67: States that an application under section 391(1) for an order convening a meeting of creditors and/or members should be by a Judge's summons supported by an affidavit and moved ex parte.
- Rule 68: Specifies the requirement of service on the company if the company is not the applicant.
- Rule 69: Outlines the directions a Judge may give upon hearing the summons, including determining the class of creditors/members, fixing the time and place of meetings, and other procedural details.
- Rule 73-76: Detail the notice and advertisement requirements for the meeting, including the affidavit of service.
- Form No. 33 & Form No. 34: Provide the format for the summons and the supporting affidavit.

Case Background:
The appellant-company filed applications under sections 391 to 394 of the Companies Act, 1956, seeking directions to hold a meeting of shareholders and members to consider a proposed scheme of amalgamation. The applications were supported by an affidavit and moved ex parte as per Rule 67.

High Court's Query:
The Company Judge raised a query about the necessity of hearing shareholders and creditors before issuing directions for holding the meeting. The appellant contended that Rule 67 did not require such a hearing.

Division Bench's Judgment:
The Division Bench of the Karnataka High Court ruled that hearing all parties was necessary before the Company Court could issue directions to convene a meeting under section 391(1), and an ex parte order could not be passed.

Supreme Court's Analysis:
The Supreme Court noted that the Companies (Court) Rules, 1959, enacted under section 643 of the Companies Act, 1956, have statutory force. Rule 67 explicitly states that the summons for directions should be moved ex parte, indicating a preliminary step where the Court needs to be prima facie satisfied about the genuineness and bona fides of the application.

Rationale for Ex Parte Hearing:
- The ex parte nature of the summons is justified as it is a preliminary step, and requiring a hearing at this stage would make the scheme under section 391 unworkable.
- The Court must apply its mind to the checklist indicated in Rule 69 and be prima facie satisfied about the genuineness and bona fides of the application.
- The subsequent stages involve notice and advertisement of the meeting as per Rules 73 and 74, ensuring that creditors and members are informed and can participate.

Supporting Judgments:
- Miheer H. Mafatlal v. Mafatlal Industries Ltd.: The Supreme Court emphasized that the Company Court must ensure the fairness and legality of the scheme before sanctioning it, but the initial step of convening a meeting can be ex parte.
- Sakamari Steel & Alloys Ltd., In re: The Bombay High Court held that section 391(1) is a check-post where the Court examines the genuineness and bona fides of the scheme.

Disagreement with Allahabad High Court:
The Supreme Court disagreed with the Allahabad High Court's judgment in Hind Auto Indo Ltd. v. Premier Motors (P.) Ltd., which required a hearing at the threshold stage, as it would render the Rules unworkable.

Conclusion:
The Supreme Court allowed the civil appeals, setting aside the impugned judgment, and held that the application under section 391(1) for convening a meeting should be moved ex parte as per Rule 67, with no order as to costs.