2013 (9) TMI 452 - HC - Companies Law

Order for Convening Meeting - Whether notice to the Central Government shall be given on an application u/s 391 (1) moved by way of judges summons, ex parte before issuing an order convening a meeting of the creditors or class of creditors or members or class of members - Whether at the initial stage of moving the judges summons ex parte or after direction for convening the meeting of the creditors or class of creditors or the members or its classes Held that - The facts narrated in the application and the scheme proposed does not envisage the invocation of the provision of Section 394A before convening the meeting and this Court the application was disposed by giving the directions as to how the meeting is to be conducted. The Company Court does not act as a Court of an appeal and was equally not expected to put it seal of an approval on the scheme, either the majority of the shareholders have voted in favour of the Scheme or the Company Law Board or the Registrar or the Official Liquidator has not put any adverse report - The provision cannot have the restricted applicability at the post meeting stage but can be applied before passing any order as contemplated under Section 391 or 394 of the said Act. It cannot be said that the provisions contained under Section 394A of the Companies Act can only be resorted after convening the meeting or before passing the final order either sanctioning or refusing to sanction the scheme - The said provision can be pressed at any stage on an application being moved under Section 391 or 394 of the Act depending upon the facts of the each case - Recourse to Section 394A of the Act should not be readily adopted the moment, the application was moved but certainly should be adopted before sanctioning the scheme. Section 391 of the Companies Act provides the sanctioning of the scheme by the Court, provided; the Court is satisfied that an application made under the said provisions contains all disclosure of material facts relating to the Company namely the latest financial position of the Company, latest auditor s report on accounts of the Company and pendency of any investigation proceeding in relation to the Company. At the time of promulgating the Companies Act, 1956, Section 394A was not incorporated but was subsequently inserted by Act 31 of 1965 with effect from 15th October, 1965. By virtue of Sub-section 1 and 2 of Section 643 of the Companies Act, 1956, the Companies (Court) Rules 1959 was framed by the Supreme Court of India and assumes the Act of parliament. The said rule came into force on and from 1st day of October, 1959. Rule 67 & 68 of the said rules provide for moving the application by way of judges summons ex parte, unless an application is taken out other than the Company. In such event, the copy of the summons and the affidavit in support of the said judges summons shall be served on the Company or where the Company is being wound up on its liquidator, not less than 14 days before the date fixed for hearing of the summons. Rule 69 of the said rules contains the provisions relating to the directions at the hearing of the judges summons which further provides that upon hearing on the day when it is moved ex parte or any adjourned date, the Court can dismiss the summons. One of the directions as enshrined under Rule 69 of the said rules contains the fixation of time and place of meeting or meetings of the creditors or class of the creditors and/or member or the class of the members relating to the proposed compromise or arrangement.

Issues Involved:
1. Whether notice to the Central Government is required on an application under Section 391(1) of the Companies Act before convening a meeting of creditors or members.
2. Interpretation and application of Section 394A of the Companies Act.
3. The procedural requirements for convening meetings of creditors or members for the approval of a scheme of amalgamation.

Issue-wise Detailed Analysis:

1. Notice to the Central Government under Section 391(1):
The court examined whether notice to the Central Government is necessary at the initial stage of moving a judge's summons ex parte before convening a meeting of creditors or members. It was noted that Section 391(1) of the Companies Act requires a meeting of creditors or members for approving a scheme of amalgamation. The court referenced the case of Bangeswari Cotton Mills Ltd., which held that notice to the Central Government is not required at the stage of moving the judge's summons before calling the meeting. This interpretation was given to avoid conflict between Section 394A and the rules framed under the Companies Act. However, the court also considered the judgment in Ucal Fuel Systems Ltd., which emphasized that notice to the Central Government is obligatory to enable it to study the proposal and raise objections.

2. Interpretation and Application of Section 394A:
Section 394A requires notice to the Central Government for every application made under Section 391 or 394. The court discussed the conflicting views from various high courts. The Allahabad High Court in Hind Auto Industries Ltd. v. Premier Motors (P.) Ltd. held that notice should be given at the threshold stage of moving the application. The Supreme Court in Chembra Orchard Produce Ltd. v. Regional Director of Company Affairs did not directly address the interpretation of Section 394A but suggested that requiring notice at the initial stage could render the scheme of the Companies (Court) Rules, 1959 unworkable. The court concluded that notice under Section 394A should be given before passing any final order under Section 391 or 394, not necessarily at the initial stage of moving the application.

3. Procedural Requirements for Convening Meetings:
The court outlined the procedural steps for convening meetings of equity shareholders for the approval of the scheme of amalgamation. Separate meetings for each applicant company were scheduled with specific dates, times, and locations. Notices of the meetings were to be published in newspapers and sent to shareholders by registered post or personal messenger. The court appointed chairpersons for each meeting and set the quorum requirements. The voting by proxy was permitted, and the chairpersons were given the authority to adjourn the meetings if necessary. The chairpersons were also required to report the results of the meetings to the court within 21 days.

Conclusion:
The court disposed of the application with directions to convene separate meetings of the equity shareholders of the applicant companies for considering the scheme of amalgamation. The notice to the Central Government under Section 394A was deemed necessary before passing any final order under Section 391 or 394, but not at the initial stage of moving the application. The procedural requirements for the meetings were detailed, ensuring compliance with the statutory provisions and safeguarding the interests of the shareholders and the public.

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