2013 (5) TMI 347 - HC - Companies Law

Winding up Prayers made in the present application read as under (a) Pass necessary orders and directions to ensure that the Scheme is workable u/s 392(1) and 394; Alternatively (b) Declare the Scheme dated 29.03.2011 as sanctioned by Hon ble Court in CP/20/2011 as unworkable and cancelled and consequently order the winding up of the Applicant Company. Held that - It is clear from the law explained by the Supreme Court IN Reliance Natural Resources Ltd. v. Reliance Industries Ltd. 2007 (10) TMI 402 - HIGH COURT OF BOMBAY case that while the Company Court is not powerless and can never become functus officio , it cannot rewrite a scheme in any manner, even at the post sanction stage. The Court has to ensure that the basic nature of the arrangement remains and whatever modification is made should be necessary for the working arrangement. The scope of the powers of the Company Court u/s 392 of the Act, as explained by the majority opinion of the Supreme Court in Reliance Natural Resources Ltd. (supra), does not permit rewriting of the scheme or introducing into it clauses that plainly do not exist. The pleas of RLB in the present application go far beyond mere modification of the Scheme. The Court is satisfied that accepting the prayer of RLB to restore it the distribution network would be nothing short of ordering specific performance of an agreement that has already worked itself out and would be reading into the Scheme, clauses and obligations which did not exist when the Scheme was accorded sanction. The alternative prayer that RLB should be directed to be wound up, since its entire substratum has disappeared, will require a detailed examination of several relevant factors, all of which are not before the Court. Nothing precludes RLB from seeking winding up in accordance with law in appropriate proceedings by placing the full facts before the Court which can then be responded to by the OL, the RD and other interested parties including creditors. Given the pleadings in the present application, it is not possible to undertake that exercise at this stage. Therefore, while reserving RLB s liberty to seek winding up in accordance with law, the present application is dismissed with costs of Rs. 20,000 to be paid by RLB to Turner within four weeks from today.

Summary

Issues Involved:
1. Workability of the Scheme of Arrangement under Sections 391 to 394 of the Companies Act, 1956.
2. Transfer of distribution network and decryption codes.
3. Allegations of mala fide actions and breach of obligations by Turner.
4. Contempt petition filed by Turner.
5. Powers of the Court under Section 392 of the Companies Act, 1956.
6. Alternative prayer for winding up of RLB.

Detailed Analysis:

1. Workability of the Scheme of Arrangement under Sections 391 to 394 of the Companies Act, 1956:
RLB filed an application under Sections 391 to 394 of the Companies Act, 1956, and Rule 9 of the Companies (Court) Rules, 1959, seeking either to ensure the workability of the Scheme of Arrangement or to declare it unworkable and cancel it, leading to the winding up of RGB. The Scheme was initially sanctioned by the Company Court on 29th March 2011.

2. Transfer of Distribution Network and Decryption Codes:
RLB contended that the central feature of the Scheme was the transfer of RGB's business to RLB as a 'going concern,' including the distribution network. RLB alleged that Turner failed to transfer or activate the STBs by not providing the decryption codes, which rendered the STBs useless and defeated the Scheme's purpose. Turner, however, maintained that there was no obligation to provide the decryption codes and that the STBs were properties of RGB, now belonging to RLB.

3. Allegations of Mala Fide Actions and Breach of Obligations by Turner:
RLB accused Turner of acting mala fide by not transferring the decryption keys, thereby destroying the value of the distribution network and the commercial viability of RLB. Turner argued that RLB's application was an afterthought following the contempt petition and that RLB never raised any dispute regarding the distribution network during the Scheme's sanctioning process.

4. Contempt Petition Filed by Turner:
Turner filed a contempt petition (Cont. Cas. (C) No. 230 of 2012) alleging RGB's failure to comply with its obligations under the Scheme. The Court directed RLB to deposit US $1.5 million in Indian rupees in Court, which led RLB to file the present application.

5. Powers of the Court under Section 392 of the Companies Act, 1956:
The Court discussed the scope of its powers under Section 392 of the Act, which allows it to supervise the carrying out of the Scheme and make necessary modifications for its proper working. However, the Court cannot rewrite the Scheme or introduce new clauses. The Court referenced the Supreme Court's decisions in J.K. (Bombay) (P) Ltd. v. New Kaiser-I-Hind Spg. & Wvg. Co. Ltd. and Reliance Natural Resources Ltd. v. Reliance Industries Ltd., emphasizing that modifications should not change the Scheme's basic fabric.

6. Alternative Prayer for Winding Up of RLB:
RLB's alternative prayer for winding up was declined by the Court, noting that a detailed examination of several relevant factors was required. The Court reserved RLB's liberty to seek winding up in accordance with law in appropriate proceedings.

Conclusion:
The Court dismissed RLB's application, stating that it could not read into the Scheme any obligation on Turner to ensure the transfer of the distribution network by providing the decryption codes. The Court also declined the alternative prayer for winding up, reserving RLB's liberty to seek such relief in appropriate proceedings. The application was dismissed with costs of Rs. 20,000 to be paid by RLB to Turner within four weeks.