2020 (3) TMI 100 - HC - Companies Law

Validity of scheme of arrangement - reduction of share capital is rejected inter alia on the ground that the requisite material was not placed before the shareholders and creditors at the time of meeting so as to take informed decision and for approving scheme of arrangement - HELD THAT - If the prayers of the petition are examined, then one will have no other option but to come to the conclusion that the scheme, as it stood in the backdrop those factual narration of the SEBI and SAT's prohibitory orders, would surely militate against granting of the prayers. The Court is of the view that the passage of time i.e. when the scheme was floated or sought to be implemented after approval of the Court was that of year 2008. The requisite meeting of the concerned stake holders were held within that year or around that time and when the petition was taken up for hearing and judgment was rendered in the year 2015, the said consent or lack of objection of the stake holder could not have been acted upon by the Court and therefore from that angle also one has to accept that the learned single Judge did not erred in not granting the prayers. The Court is of the view that the present findings recorded in this judgment and the judgment of the learned single Judge may not be treated as impediment in the way of the petitioner in seeking fresh mandate from the stakeholders for floating appropriate scheme hereafter and in such eventuality it goes without saying that the same would be brought to its logical conclusion in accordance with law - appeal dismissed.

Issues Involved:
1. Rejection of the scheme of arrangement and compromise with creditors and reduction of share capital.
2. Allegations of non-disclosure of material facts to shareholders and creditors.
3. Applicability of SEBI and SAT orders.
4. Validity of objections raised by a minority shareholder.
5. Jurisdiction of the court considering the BIFR proceedings.
6. Staleness of the proposed scheme due to the passage of time.

Issue-wise Detailed Analysis:

1. Rejection of the Scheme of Arrangement and Compromise with Creditors and Reduction of Share Capital:
The appellant company challenged the rejection of the scheme of arrangement and compromise with creditors and the reduction of share capital by the lower court. The scheme was rejected primarily because the requisite material was not placed before the shareholders and creditors at the time of the meeting, preventing them from making an informed decision. The scheme had been approved by the statutory majority in various meetings, but the court found that all material facts were not disclosed to the voters.

2. Allegations of Non-disclosure of Material Facts to Shareholders and Creditors:
The objections raised by one of the shareholders included allegations that the scheme was not bona fide and was intended to benefit Nirma Industries and its group. It was argued that the scheme was oppressive to minority shareholders and aimed at evading SEBI's prohibitory orders. The court found that the appellant company had not disclosed material facts, such as SEBI's prohibitory order and the SAT's decision, to the shareholders and creditors. The court emphasized that the disclosure of all material facts is a mandatory requirement under Section 391(2) of the Companies Act.

3. Applicability of SEBI and SAT Orders:
The court noted that SEBI had passed an order on 06.06.2008, restraining the appellant company from accessing the securities market and prohibiting it from dealing in securities for five years. This order was not disclosed to the shareholders and creditors. Additionally, the SAT had dismissed an appeal by Nirma Industries, which was also not disclosed. The court found that these non-disclosures were significant and could have influenced the decision of the shareholders and creditors.

4. Validity of Objections Raised by a Minority Shareholder:
The appellant argued that the objections raised by a shareholder holding only 0.0025% of the total shares should not be allowed to challenge the commercial wisdom of the majority. However, the court held that the objections were valid as they highlighted the non-disclosure of material facts, which is a crucial aspect of the approval process for any scheme of arrangement.

5. Jurisdiction of the Court Considering the BIFR Proceedings:
The appellant contended that the jurisdiction of the court was not barred at the time of considering the petition for sanctioning the scheme, as the BIFR had deregistered the reference filed by the appellant company. The court acknowledged that the BIFR had deregistered the reference on 16.07.2014, but it emphasized that the initiation of the petition during the pendency of the BIFR reference was not the sole ground for rejection. The court also considered the subsequent developments and the fact that the BIFR was no longer in seisin of the matter.

6. Staleness of the Proposed Scheme Due to the Passage of Time:
The court observed that the scheme was framed in 2008, and by the time it was considered in 2015, it had become stale. The court noted that the learned single judge had the power to modify the scheme under Section 392 of the Companies Act, 1956, but the passage of time and the changes in circumstances made the scheme unworkable in its present form.

Conclusion:
The court dismissed the appeal, upholding the rejection of the scheme of arrangement and compromise. It emphasized the importance of disclosing all material facts to shareholders and creditors and noted that the non-disclosure of SEBI and SAT orders was a significant factor in the rejection. The court also acknowledged the staleness of the scheme due to the passage of time and suggested that the appellant could seek fresh mandate from stakeholders for a new scheme.

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