1970 (9) TMI 70 - HC - Companies Law

Share capital - Further issue of Inter-corporate investment Power to compromise or make arrangements with creditors and members Compromise and arrangement Amalgamation

Issues Involved:
1. Issue of fresh capital without permission.
2. Applicability of the Monopolies and Restrictive Trade Practices Act, 1969.
3. Compliance with sections 372, 395, 391 to 394, and 393(1) of the Companies Act, 1956.
4. Alleged abuse of process by the petitioner.
5. Interests of shareholders of the petitioner company.
6. Nature of the order dated 30th April, 1970.
7. Disclosure requirements under section 391(2) of the Companies Act.

Detailed Analysis:

1. Issue of Fresh Capital Without Permission:
The court acknowledged that the scheme envisages the issue of fresh capital by Kohinoor, which requires the consent of the Controller of Capital Issues under the Capital Issues (Control) Act, 1947. The court noted that the permission was not yet obtained but decided to sanction the scheme, leaving it to the petitioner to obtain the necessary permission, which was expected to be granted given the circumstances.

2. Applicability of the Monopolies and Restrictive Trade Practices Act, 1969:
The court examined whether the Monopolies and Restrictive Trade Practices Act, 1969, applied to Kohinoor. It found no evidence that Kohinoor's assets exceeded twenty crores of rupees or that it was interconnected with other undertakings to meet this threshold. Therefore, the Act did not apply, and the scheme could be sanctioned without contravening its provisions.

3. Compliance with Sections 372, 395, 391 to 394, and 393(1) of the Companies Act, 1956:
The court held that section 391 is a complete code in itself for schemes of compromise and arrangement. It rejected the contention that the scheme violated section 372, as the issue of shares by Kohinoor was not an investment of funds but an exchange of shares. The court also found that the scheme did not need to comply with section 395, as it was a valid scheme under section 391. The court confirmed that all statutory provisions, including section 393(1), were complied with.

4. Alleged Abuse of Process by the Petitioner:
The court dismissed the argument that Kohinoor's purchase of Navjivan shares shortly before proposing the scheme constituted an abuse of process. It found the purchase legitimate and aimed at rejuvenating Navjivan, which was in financial distress.

5. Interests of Shareholders of the Petitioner Company:
The court found no merit in the contention that the scheme ignored the interests of Kohinoor's shareholders. The scheme was approved by a significant majority of Kohinoor's shareholders, including major institutional investors like the Life Insurance Corporation and the Unit Trust of India, indicating that their interests were considered.

6. Nature of the Order Dated 30th April, 1970:
The court clarified that the order dated 30th April, 1970, was not interlocutory but a final order sanctioning the scheme. The reservation made for the Central Government's representation was only to consider further directions if necessary, not to reconsider the sanction itself.

7. Disclosure Requirements Under Section 391(2) of the Companies Act:
The court found that all necessary disclosures, including the latest financial position of Navjivan and the auditors' report, were made. The court rejected the contention that the petitioner failed to disclose the outcome of any investigation by the Central Government, noting that the Central Government itself would have the relevant information.

Conclusion:
The court confirmed its order dated 30th April, 1970, sanctioning the scheme of compromise and arrangement between Navjivan and its creditors and members, sponsored by Kohinoor. The scheme was found to be fair, reasonable, and in compliance with all statutory provisions. The court also provided directions for marginal adjustments due to the time elapsed and addressed the petitioner's concerns regarding potential appeals. Costs were awarded to the Central Government and other parties involved.

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