2015 (4) TMI 448 - HC - Companies Law

Application for approval of scheme of amalgamation and arrangement - Creditors objection regarding not complying provision of section 391 and 394 of the Companies act, Unsecured creditors meeting not held - Application for winding up - Objection by minor shareholders - Report of Regional Director & Liquidator - Held that - I feel the failure to call a meeting of the unsecured creditors even assuming for a moment that the debts are genuine is not fatal and is no ground to refuse the scheme of amalgamation. The court has to now consider as to whether the objections are valid. On this aspect, it is to be noted that the creditors are not opposing the scheme of amalgamation as being against the public interest but they are only canvassing for repayment of their amounts from the available money before amalgamation. It is a case where they are pleading for a clearance of the debts before amalgamation and whereas the petitioner disputes the binding nature of the debts. Therefore, even if the meeting is not called for, the genuineness of the debts is a matter for consideration and the court has to answer as to whether their interest is protected or defeated or they have been prejudiced by not calling the meeting or by scheme. Any right for the objecting creditors can be considered only if in the particular circumstances of this case, the genuineness of the debt is proved beyond pale of doubt as binding on petitioner. To draw such an inference, there should be a counter evidence on behalf of the creditors. In this case, except relying upon the admitted lending, there is no other material to show that by virtue of such lending, the Company is benefited and the opinion formed by the Company Law Board or the Central Bureau of Investigation is erroneous. There is positive evidence throwing doubt about the genuineness as against the prima facie claim of truthfulness of the objecting creditors. The opposition of the claim by the creditors is definitely not in public interest and it is for their personal interest. The defence of the petitioner for non-consideration of those debts and dispensing with the unsecured creditors' meeting is bona fide. In view of the above factual situation, the several decisions touching on the law of winding up and the rights of the creditors is not referred to. The fixing of the swap ratio is based on the report of the auditors, which is accepted by the majority of the shareholders, and, therefore, it cannot be said that the scheme is disadvantageous to the shareholders. Therefore, I find that the objections raised by the minority shareholders are also not tenable and there is no violation of any of the mandates under Section 391 or 394 of the Act while dealing with the meeting of the shareholders. The report of the Official Liquidator or the Regional Director cannot be taken advantage by objecting creditors and on the other hand they do certify the beneficial interest of amalgamation. I, therefore, find that there is also no violation of the requirement from calling information from the Official Liquidator or the Regional Director. It has been already observed that the reports of the Official Liquidator or the Regional Director are not final and it is ultimately for the Court to consider the effectiveness of those reports. In this case, the court was inclined to accept the conditions that are to be imposed for amalgamation as suggested by the Regional Director. On a comprehensive assessment of the claims, this court feels that the scheme of amalgamation is in the interest of the public and the shareholders and the interest of the workmen is also protected. There is no attempt to defeat any provision of law with regard to pending of future prosecutions or liabilities. There is also no escaping of the liability with regard to disputed creditors in case they are found to be true. I, therefore, feel that this court by applying the provisions under Section 391 and 394 of the Act satisfactorily finds that the scheme of amalgamation is bona fide and has to be allowed by imposing certain conditions. - Scheme conditionally approved.

Summary

Issues Involved:
1. Whether the scheme of amalgamation is in accordance with the provisions of Sections 391 and 394 of the Companies Act, 1956.
2. Whether the grounds for winding up are made out.
3. Whether non-convening of the meeting of the unsecured creditors is intentional and whether such failure entitles the rejection of the scheme of amalgamation.
4. Whether the rights of the shareholders were not properly taken care of and the view of the majority is not binding on the minority shareholders.
5. Whether the reports of the Official Liquidator and the Regional Director disentitle the scheme of amalgamation.
6. Whether the scheme of amalgamation is fair and in the public interest and if so it has to be sanctioned as pleaded.

Detailed Analysis:

1. Whether the scheme of amalgamation is in accordance with the provisions of Sections 391 and 394 of the Companies Act, 1956:
The court examined the compliance with statutory procedures under Sections 391 and 394 of the Act, referencing the Supreme Court's principles in Miheer H.Mafatlal vs. Mafatlal Industries. The court noted that all requisite statutory procedures were followed, including obtaining the necessary majority vote, providing relevant material to creditors and shareholders, and ensuring the scheme was not violative of any law or public policy. The court found that the scheme met all the required parameters and was backed by the requisite majority.

2. Whether the grounds for winding up are made out:
The court addressed the objections raised by 37 creditors who filed applications complaining about the injustice done to them and seeking winding up of the company. The court found that the debts claimed by these creditors were under a cloud of suspicion and not prima facie binding on the petitioner company. The court also noted that the refusal to pay these debts was not mala fide, and the scheme of amalgamation was in the interest of the public and shareholders.

3. Whether non-convening of the meeting of the unsecured creditors is intentional and whether such failure entitles the rejection of the scheme of amalgamation:
The court acknowledged that the meeting of unsecured creditors was not called, but it was not fatal to the scheme. The objections raised by the creditors were considered by the court, which found that the debts were not genuine and were tainted. The court concluded that the failure to call a meeting was not intentional and did not entitle the rejection of the scheme.

4. Whether the rights of the shareholders were not properly taken care of and the view of the majority is not binding on the minority shareholders:
The court addressed the objections raised by minority shareholders regarding the swap ratio and the timing of the merger meeting. The court found that the swap ratio was based on the auditors' report and was accepted by the majority of shareholders, including reputed companies like LIC and Birla Sunlife Mutual Fund. The court concluded that the majority decision was binding on the minority shareholders and there was no violation of propriety.

5. Whether the reports of the Official Liquidator and the Regional Director disentitle the scheme of amalgamation:
The court considered the reports of the Official Liquidator and the Regional Director, noting that they did not oppose the scheme as being against public interest. The court found that the petitioner company had accepted all the requirements of the Regional Director and that the reports did not disentitle the scheme of amalgamation.

6. Whether the scheme of amalgamation is fair and in the public interest and if so it has to be sanctioned as pleaded:
The court concluded that the scheme of amalgamation was fair, in the public interest, and beneficial to the shareholders and workmen. The court imposed certain conditions to ensure compliance with ongoing prosecutions and investigations and to protect the interests of creditors and shareholders.

Conclusion:
The court approved the scheme of amalgamation and arrangement with effect from 01-04-2011, subject to specific conditions, and dismissed all objections and applications filed by the creditors and shareholders. The court directed that a copy of the order and scheme be furnished to the Companies Registrar within 30 days and ordered the petitioner to pay a sum of Rs. 25,000 each to the Regional Director and the Official Liquidator.