2013 (5) TMI 94 - HC - Companies Law

Amalgamations - Locus Standi - Challenge the scheme by a person who is neither a shareholder nor a creditor of amalgamating company - The appellants herein/the original applicants are unsecured creditors of VAL, the demerged Company. They filed an application challenging the scheme of amalgamation on various grounds and more particularly on the ground that if the scheme is sanctioned, it would have adverse civil consequences and it would adversely affect their interest. - whether the appellants who are the creditors of the transferee Company are entitled to be heard in the petition filed under Section 391 of the Companies Act, by the transferor Company. Held that - The creditors of the transferee Company would have no right to intervene in the petition filed by the transferor Company under Section 391 of the Companies Act. Reliance was placed on judgment of learned Single Judge of this Court in the matter of Mayfair Ltd. In re 2003 (6) TMI 339 - HIGH COURT OF BOMBAY . In this petition, learned Single Judge has come to the conclusion that the creditor of the transferor Company would equally have right to file his objection to the scheme which is not just and fair to him or to the class of creditors to whom he belongs. In our view, we respectfully disagree with the view taken by learned Single Judge since the provision of Section 391 of the Companies Act cannot be extended to such extent that even third parties namely those persons who are not shareholders or creditors of the Company can be allowed to intervene in such petitions filed under Section 391 of the Companies Act. It is an admitted position that the appellants who are the creditors of transferee Company namely VAL, the demerged Company were duly heard in the petition filed by the said Company in the Madras High Court for getting their scheme sanctioned and the judgment of the Madras High Court is awaited. If the objection raised by the appellants in the said Court is accepted and the scheme is not approved by the Madras High Court, then, the entire scheme will fail and as such, it cannot be said that there is violation of principles of natural justice. We are, therefore, unable to accept the view taken by learned Single Judge in the said two decisions and overrule the said judgments. In our view, therefore, there is no merit in the contention raised by the learned Counsel appearing on behalf of the appellants. The appeals and the applications, therefore, are dismissed. Decision of Apex Court in National Textile Workers Union (1982 (12) TMI 126 - SUPREME COURT OF INDIA) distinguished.

Issues Involved:
1. Locus Standi of the Appellants
2. Applicability of Section 391 and 392 of the Companies Act, 1956
3. Principles of Natural Justice
4. Applicability of Precedents and Case Laws

Detailed Analysis:

1. Locus Standi of the Appellants:
The primary issue in this case was whether the appellants, who are creditors of the transferee company (VAL), have the locus standi to intervene in the petition filed under Section 391 of the Companies Act by the transferor company (SGL). The court held that the appellants, being neither shareholders nor creditors of the transferor company, had no locus to intervene in the petition filed by SGL. The court emphasized that Section 391(1)(a) and (b) clearly refer to a compromise or arrangement proposed between the company and its creditors or members. Therefore, the appellants, as creditors of the transferee company, do not have the right to be heard in the petition filed by the transferor company.

2. Applicability of Section 391 and 392 of the Companies Act, 1956:
The court examined the relevant provisions of Sections 391 and 392 of the Companies Act. Section 391 deals with the power to compromise or make arrangements with creditors and members, while Section 392 provides the Tribunal with the power to enforce such compromises and arrangements. The court noted that Section 391 does not contemplate that notice and hearing can be given to the creditors of the transferee company in the petition filed by the transferor company. The court further observed that Section 392(2) allows any person interested in the affairs of the company to apply for modifications in the compromise or arrangement, but this does not extend to creditors of the transferee company in the context of Section 391.

3. Principles of Natural Justice:
The appellants argued that their rights would be adversely affected if the scheme of amalgamation was sanctioned without giving them an opportunity to be heard, invoking the principles of natural justice. However, the court rejected this argument, stating that the appellants were already heard in the petition filed by the transferee company (VAL) in the Madras High Court. The court concluded that there was no violation of principles of natural justice as the appellants had the opportunity to present their objections in the appropriate forum.

4. Applicability of Precedents and Case Laws:
The appellants relied on various judgments, including Miheer H. Mafatlal v. Mafatlal Industries Ltd. and National Textile Workers Union v. P. R. Ramakrishnan, to support their contention that they had the right to be heard. The court distinguished these cases, noting that they did not apply to the facts of the present case. The court also referred to several judgments of the Bombay High Court and the Delhi High Court, which consistently held that creditors of the transferee company have no right to intervene in the petition filed by the transferor company under Section 391. The court specifically overruled the judgments of learned Single Judges in ICICI Bank Ltd. In re and Mayfair Ltd. In re, which had held otherwise.

Conclusion:
The court dismissed the appeals and applications, holding that the appellants, as creditors of the transferee company, had no locus standi to intervene in the petition filed by the transferor company under Section 391 of the Companies Act. The court emphasized that the appellants had already been heard in the appropriate forum (Madras High Court) and that there was no violation of principles of natural justice. The court also clarified the scope and applicability of Sections 391 and 392, and upheld the consistent judicial view that creditors of the transferee company cannot intervene in the petition filed by the transferor company.

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