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TMI Blog2010 (10) TMI 911X X X X Extracts X X X X X X X X Extracts X X X X ..... omayaji, learned senior counsel, Karthik H. Seshadri, Rahul Balaji, N.V. Srinivasan, S. Vasudevan, P.R. Raman, S. Raghunathan, Ms. P. Meghna Nair, P. Vinod Kumar, A.K. Mylsamy and T.K. Baskar, learned counsel appearing for the creditors-objectors, Mr. M. Devendran, learned senior panel counsel for the Central Government and Mr. Jayakumar, learned Deputy Official Liquidator. 3. M/s. Subhiksha Trading Services Ltd., the petitioner in C.P. No. 239 of 2008 is the transferor and M/s. Blue Green Constructions and Investments Ltd., the petitioner in C.P. No. 240 of 2008 is the transferee. 4. The averments contained in C.P. No. 239 of 2008, in brief, can be summarised as under : (a)The transferor company was first incorporated as a private limited company on 10-4-1997 and later got converted to a public limited company with effect from 30-3-2005. (b)The primary objects of the company are to trade in any articles, to carry on the business of store keepers and to buy, sell and deal in goods, stores and consumable articles, both wholesale and retail. (c)The authorised share capital as on 31-3-2008 as per the unaudited accounts ending on 31-3-2008, is Rs. 50 crores, divided into 5 crores ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... neral meeting held on 25-7-2008, for the issue of 65,09,489 preferential warrants, with each warrant carrying the right to subscribe to one equity share of Rs. 10 of the transferee company at a price of Rs. 3,618 per share at a future date subject to Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997; (iii) the issue of preferential warrants to R. Subramanian and Subhiksha Trading Services Ltd., on receipt of 10 per cent of issue price per share, viz., Rs. 361.80 per warrant on 7-8-2008 and 8-8-2008; and (iv) the surrender of the Certificate of Registration as NBFC to the Reserve Bank of India and the execution of a business arrangement with the transferor. (i)The annual accounts of the transferee company for the year ending 31-3-2008 was approved in the annual general meeting held on 26-9-2008. (j)The board of directors of both the companies approved a scheme of amalgamation, in the meetings held on 30-6-2008, whereby the assets and liabilities of the transferor company will stand vested in the transferee. (k)The reasons and circumstances justifying the proposed scheme are (i) that both the companies are engaged in the sam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red creditors and the amounts due to them as on 31-3-2008 and 30-6-2008. The list shows the names of the Bank of Baroda, HDFC Bank, HSBC Bank, Standard Chartered Bank, ICICI Bank, Kotak Mahindra Bank, ABN Amro Bank, Yes Bank, Federal Bank, Development Credit Bank, Bank of India and Induslnd Bank, as the secured creditors. The total liability to these banks as on 31-3-2008 is shown as Rs. 639.83 crores and as on 30-6-2008 is shown as Rs. 732.05 crores. 6. Most of the averments contained in C.P. No. 240 of 2008 filed by the transferee company, are only a repetition of the contents of the petition filed by the transferor company. Therefore, only those averments in C.P. No. 240 of 2008, which do not find a place in C.P. No. 239 of 2008 alone are extracted as under : (a)The annual accounts of the transferee company for the year ended 31-3-2008 has been approved by its shareholders in the meeting held on 26-9-2008. (b)The aggregate assets of the transferor and the transferee companies are more than sufficient to meet all their liabilities and the scheme will not adversely affect the rights of any of the creditors. (c)The transferee company has no secured creditors, as seen from the b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... report stating that as per the report of the chartered accountants engaged by him, there is no material to come to the conclusion that the affairs of the transferor are being conducted in a manner prejudicial to the interests of its members or public interest. Thus, the official liquidator has also not recorded any objections to the proposed scheme. 9. Therefore, if we look at the petitions superficially, all the requirements for sanctioning a scheme, stand satisfied, since (i) the majority of the shareholders present at the court convened meeting have approved it ; (ii) the majority of the creditors present at the court convened meeting have approved it ; (iii) the Regional Director has not recorded any substantial objections ; and (iv) the official liquidator, on the basis of the report of the chartered accountant appointed by him, has concluded that the affairs of the transferor are not conducted in a manner prejudicial to the interests of the members or the public. It is also relevant to note at this juncture that the majority of the shareholders and the majority of the creditors gave consent to the scheme, even before the date of filing of the petitions for sanction of the sc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ues involved. It is as follows : (a)The total issued, subscribed and fully paid up capital of the transferor company is 3,25,70,370 equity shares of Rs. 10 each, out of which, 7,62,423 shares are not fully paid up, as they represent the receivables from the Employees Stock Option Scheme. The shareholding pattern shows that (i) the promoter R. Subramanian holds 1,42,36,911 equity shares, (ii) his father and mother hold 11 shares each, (iii) Zash Investment and Trading Co. Ltd., holds 32,57,037 shares, and (iv) a company by name Cash and Carry Wholesale Traders Pvt. Ltd., holds 51,62,001 shares. Apart from them, ICICI Venture Funds Management Company Ltd., (hereinafter referred to as "ICICI Venture"), holds about 23 per cent. (b)On 30-6-2008, the boards of directors of the transferor and transferee companies approved the proposal for merger. In pursuance thereof, the transferor company wrote a letter dated 4-7-2008 to the key shareholders, asking for their consent. In response, ICICI Venture Funds Management Co. Ltd., which has 23 per cent shareholding sent a reply dated 20-7-2008, giving consent. Similarly, Zash Investment and Trading Co. Ltd., which holds about 10 per cent, also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 31-10-2008. (g)As per the report of the chairman of the meeting, five equity shareholders, viz., ( i) the promoter R. Subramanian (ii) his father, (iii) his mother, (iv) a company by name Cash and Carry Wholesale Traders Pvt. Ltd., and (v) Zash Investment and Trading Co. Pvt. Ltd., who altogether hold 2,26,55,971 shares participated in the meeting and approved the scheme without any modification. It is relevant to note here that the company Cash and Carry Wholesale Traders Pvt. Ltd., is a closely held private limited company of which R. Subramanian is the key operator. In so far as the Zash Investment and Trading Co. Pvt. Ltd., is concerned, an authorised representative of the company had already signed blank proxy forms and handed them over to the representative of the transferor and hence their participation in the meeting was through their proxy. (h)Similarly, the meeting of the secured creditors of the transferor company was attended by 11 secured creditors, including the 10 secured creditors, who had already issued letters of consent/no objection in August/September 2008. The dues of these 11 secured creditors actually constitute 95.17 per cent of the total secured debt of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as that the lender creditors would give up all interest liabilities for a period of 120 days from 1-10-2008 after the effective date and would also waive 50 per cent of the principal. The balance 50 per cent of the principal was to be paid in a phased manner over a period of 10 years. The scheme envisaged the payment of the amounts in full to the non-lender unsecured creditors in 12 monthly instalments during the calendar year 2011, after waiving all interests, penal charges and damages. (n)Three secured creditors intervened even at that stage and opposed these applications C.A. Nos. 1066 and 1067 of 2009. Cash and Carry Wholesale Traders Pvt. Ltd., the applicant therein, objected to the very entitlement of the secured creditors, to intervene at that stage on the ground that they had no role to play at that stage and that whatever they wanted to say could be said in the meeting. However, P. Jyothimani, J., dismissed both the applications C.A. Nos. 1066 and 1067 of 2009 by an order dated 28-8-2009. The appeals filed by the shareholder in OSA Nos. 301 and 302 of 2009 were dismissed by the Division Bench by an order dated 5-11-2009. Against the said order, Cash and Carry Wholesale Tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the scheme : 12. The transferor and the transferee companies seek to justify the scheme, on the following grounds : (a)The merger is not inconsistent with any of the principles laid down by the courts. The scheme is also not found to be objectionable by the Regional Director of the Ministry of Corporate Affairs and the official liquidator. (b)The objectors, who fall either under the category of shareholders or under the category of secured creditors, have not been able to show how the proposed scheme is prejudicial to their interests. The sanctioning of the scheme may or may not improve their position, but it will not certainly result in deterioration of their condition. On the contrary, the rejection of the scheme would only weaken the position of the objectors further. (c)The merger has been approved unanimously by the shareholders as well as the secured creditors of the transferor, in the meetings convened by the orders of court. It was also approved unanimously by the shareholders of the transferee, in the meeting convened by the orders of court. Therefore, the objectors cannot easily resile from the consents given at die statutory meetings, without adequate justificat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... board of the transferor company on account of the failure of the managing director to carry out an independent review of the operations of the transferor by M/s. KPMG and to appoint a Chief Financial Officer. (e)The transferor is facing enquiries from the Regional Provident Fund Commissioner and the Directorate of Standard Weights and Measures and an enquiry into allegations of non-payment of salaries and wages. (f)Therefore, the investors decided to withdraw their consent for the proposed scheme and they accordingly issued a letter dated 12-2-2009 through their advocate. (g)The decision to recall the consent given earlier was on account of several factors such as (i) the change of circumstances, from what existed in June 2008 ; (ii) the weakening of the financial status of the transferor company, during the pendency of the proceedings for merger ; (iii) the failure of the promoters to keep the investors and their nominee directors, apprised of the true financial position of the company, till a meeting of the board was convened on 22-11-2008 ; (iv) the failure of the managing director of the transferor to implement the decisions of the board, taken at its meeting held on 22-11- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of the company, as projected in the unaudited financials up to the period ending 31-3-2008. (g)In September 2008, reports appeared in the press about the defaults committed by the transferor to their vendors. Though the promoters denied the reports, they admitted in a meeting held in October 2008 that there was liquidity crunch. (h)In December 2008, the objector learnt for the first time that the transferor was under serious financial stress, leading to non-payment of salaries, non-remittance of contribution to the provident fund, non-payment of rentals and default in payment of dues to vendors and service providers. It was also learnt that ICICI Venture had provided loans to the transferor in September 2008, but the same was not disclosed to the objector (Zash), either at the time of draw down or in the meeting held in October 2008. (i)The objector also provided a short term bridge loan to the transferor in December 2008, on the assurance given by them that they would comply with several obligations and also have an audit conducted by the statutory auditors and furnish a report by 31-1-2009. (j)In a meeting held on 16-1-2009, the transferor and its promoters finalised the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he objector (ICICI Bank) was Rs. 189.26 crores. It was secured by the hypothecation of stocks and movable assets and the personal guarantee of Mr. R. Subramanian. The shares held by Cash and Carry Wholesale Traders Pvt. Ltd., in the transferor company are also pledged as security for the due repayment of the dues by the transferor. (b)In the letter dated 10-7-2008, sent by the transferor seeking the consent of ICICI Bank to the proposed scheme, there was no mention about the proposal to transfer the business of the transferor under the memorandum of understanding. As per the terms and conditions of the grant of facility and the loan agreements, the transferor was obliged to obtain prior written consent of ICICI Bank before entering into any such arrangement. But no such consent was obtained. On the contrary, the transferor and its managing director suppressed material facts relating to the said arrangement. Therefore, the bank was entitled to withdraw its consent. (c)In the meeting held on 31-10-2008, convened by orders of this court, the bank participated and gave consent, honestly believing the statements and representations made by the transferor, without knowing the consequen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he warrants at the rate of Rs. 3,618 per warrant, would work out to Rs. 54,91,03,860. It is in the interest of all the stake holders that the source of money for purchasing these warrants, is disclosed by Mr. R. Subramanian. (i)The events narrated in the company petition, including the execution of the memorandum of understanding indicate that the entire undertaking of the transferor has been transferred and vested with the transferee, without real flow of consideration. In this background, the financial statements of the transferor and the transferee have to be examined by an independent auditor, to ascertain the actual state of affairs, which is essential before the court grants approval for the scheme. 17. The objections raised by the Kotak Mahindra Bank Ltd., are as follows: (a)This objector has already filed C.P. No. 68 of 2009 for winding up the transferor. The official liquidator was appointed as provisional liquidator by this court by an order dated 31-3-2009 passed in C.A. No. 389 of 2009. Therefore, the transferor has to be necessarily represented, only by the provisional liquidator and all further proceedings are to be prosecuted only by the provisional liquidator, es ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7 crores while its paid up capital itself is only Rs. 5.05 crores ; (iii) the terms and conditions of the memorandum of understanding dated 26-7-2008 are not known to the objector ; (iv) the payment of Rs. 230.02 crores, for the purchase of preferential warrants in the transferee company, has occurred without the consent of the objector, though the funds ought to have come to the objector in the normal course ; (v) the scheme is a fraud on the public and the secured creditors ; (vi) there is no basis of methodology to arrive at the value of Rs. 3,618 per share of Rs. 10 each of the transferee company; and (vii) the transferee company appears to be a shell company with no assets. On the above averments and contentions, the objector has not only opposed the scheme, but also sought a detailed investigation into the affairs of the transferor to see how monies to the tune of Rs. 800 crores had been diverted by the transferor. 18. The Standard Chartered Bank has filed its affidavit of opposition, the contents of which are as follows : (a)The transferor had been sanctioned overdraft facility of Rs. 25 crores and an additional overdraft facility of Rs. 10 crores. The repayment of the lo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r of certain shares in the transferor, were entered into by the objectors with 3 companies, which are together known as "ASS group". Mr. R. Subramanian is the promoter of this group of companies. (b)One of the companies belonging to ASS group executed a pledge of 1,62,000 shares of the transferor company, in favour of the objectors, to secure the repayment of the amount of Rs. 2.50 crores due under the aforesaid agreement. (c)But subsequent to the transfer, the objectors were informed by R. Subramanian that the ASS group had sold their entire shareholding in the transferor company to a partnership firm by name RS Associates, which is also controlled by R. Subramanian. Therefore, an amendment letter was executed on 29-4-2004, pursuant to which, the sum of Rs. 2.5 crores became liable to be paid to the objectors. Subsequently, a fresh deed of pledge was executed on 30-11-2004 and RS Associates also executed a deed of guarantee on the same day. (d)In terms of the above, an amount of Rs. 2.50 crores is due and payable by ASS group to the objectors and the same is secured by a pledge of the shares owned by RS Associates in the transferor. In such circumstances, if the merger is sanct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ey have no intention to pay and there is an attempt to liquidate the valuable securities. 21. The Tata Teleservices Limited and Tata Teleservices (Maharashtra) Limited, have filed independent affidavits of opposition, the gist of which is as follows : (a)The transferor availed 7,671 services of Tata Teleservices Ltd., in 14 States from February 2005 onwards. As at the end of December 2008 billing cycle, the transferor is due to pay to Tata Teleservices Ltd., Rs. 9,36,70,471. This objector is an unsecured creditor and they will not be in a position to realise the amounts from the transferee company, if the scheme is sanctioned. (b)The transferor availed 2,829 connections of Tata Teleservices (Maharashtra) Ltd., in Maharashtra and Goa circles from April 2006 onwards. As at the end of January 2009 billing cycle, the transferor is due to pay to Tata Teleservices (Maharashtra) Ltd., Rs. 2,45,31,280. This objector is an unsecured creditor and they will not be in a position to realise the amounts from the transferee company, if the scheme is sanctioned. This objector has already sent a notice dated 2-2-2009 under section 434 of the Companies Act, 1956. Therefore they are objecting to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s seeking sanction for the scheme. (b)There is a significant non-disclosure, in the petitions, with regard to the memorandum of understanding. (c)The real purpose of the scheme appears to be to merge one of the largest retail chains in the country with a shell company, so as to get it listed in a stock exchange, through back door methods. (d)The unaudited balance-sheet as on 31-3-2008, filed by the transferor, does not contain all relevant schedules. Therefore, it cannot be relied upon. Even the entire audited accounts of the transferee are not furnished. (e)There are no liquid assets available, to provide for payment to any of the unsecured creditors like this objector. (f)As per section 391, the latest financial statements are to be disclosed. The unaudited financial statements, which are not even updated to reflect the current financial position, would not satisfy the requirement of section 391. 25. Mediaedge : CIA India Pvt. Ltd., which is part of a global communications planning and implementation agency, was engaged by the transferor to provide a range of media services, under two agreements dated 20-11-2007 and 15-5-2008. For the services rendered by this company under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs for considering a scheme of amalgamation : 29. Having seen the justification projected by the transferor and the transferee for sanctioning the scheme and the objections raised by (i) the secured creditors ; (ii) the unsecured creditors ; and (iii) the shareholders, it is necessary at this stage to look into the broad parameters on which the scheme has to be tested. 30. In Miheer H. Mafatlal v. Mafatlal Industries Ltd. [1996] 87 Comp. Cas. 792/ 10 SCL 70 the Supreme Court enlisted the broad contours of the jurisdiction of the company court, while considering a scheme of amalgamation, as follows (page 819) : "(1)The sanctioning court has to see to it that all the requisite statutory procedure for supporting such a scheme has been complied with and that the requisite meetings as contemplated by section 391(1)(a) have been held. (2)That the scheme put up for sanction of the court is backed up by the requisite majority vote as required by section 391(2). (3)That the concerned meetings of the creditors or members or any class of them had the relevant material to enable the voters to arrive at an informed decision for approving the scheme in question. That the majority decision o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its order dated 24-11-2009 passed in SLP(C) Nos. 29827 and 29828 of 2009 (arising out of the applications of Cash and Carry) to examine the scheme and find out if there is merit in the scheme in the context of the financial viability of the scheme. Therefore, the focus of learned counsel for the transferor and the transferee, was actually on the financial viability of the scheme, while the focus of all learned counsel appearing for the objectors, was on the financial viability of the transferor and the transferee. Keeping in mind this distinction sought to be maintained by the rival parties, the scheme has to be tested on the broad parameters laid down by the Apex Court in Miheer H. Mafatlal's case (supra). 32. But before doing so, a preliminary objection raised by the petitioner needs to be addressed. As seen from the narration given above, persons who are vocal in opposing the scheme today, are the very same persons who gave consent to the scheme even before this court ordered a meeting to be convened. Thereafter, they also participated in the court convened meetings of members and creditors and agreed to the scheme. Therefore, it is the contention of the petitioners that havin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of statutory provisions. It is his contention that under article 18(a) of the articles of association of the transferor company, the quorum for the general meeting shall be only two members personally present. Therefore, going by the prescription contained in the articles, the transferor made a prayer in its application, C.A. No. 2378 of 2008, to fix the quorum for the meeting of equity shareholders, to be convened for the purpose of considering the scheme, at three members present in person or by proxy (paragraph 27 of the affidavit in support of C.A. No. 2378 of 2008). This court also passed an order on 25-9-2008 directing a meeting of equity shareholders to be convened on 31-10-2008, fixing the quorum for the meeting as two persons present in person or by proxy. 36. However, section 174(1) of the Act mandates that unless the articles of the company provide for a larger number, five members personally present, shall be the quorum for a meeting of the company, if the company is a public company, other than the one covered by section 43A. Section 170(1)(i) makes the provisions of sections 171 to 186 applicable to general meetings of a public company, notwithstanding anything t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns 171 to 186, are general provisions pertaining to the meetings of the company, whether annual general meeting or extraordinary general meeting. In contrast, sections 391 and 393 are a code complete in themselves, in respect of the procedure relating to the sponsoring of the scheme, the approval of the same by the members/creditors and the sanctioning thereof by the court. The distinction between these provisions were succinctly drawn by the court as follows : "A combined reading of sections 391 and 393 and its comparison with the provisions of section 173 shows that the former section deals with a specific situation to the exclusion of the general provisions made by section 173. Furthermore, section 173 postulates a meeting of a company whereas sections 391 and 393 contemplate convening of a meeting of members or a class of members. It is true that any meeting of a company is factually also a meeting of the members of that company but the thrust of the two sets of sections clearly establishes a different legal identity of such meetings. This distinction is also borne out when the language of section 391 is contrasted with the language of section 186 of the Companies Act, 1956. B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctions 171 to 186 as found in the body of the Act and those found in Annexure B to the above Rules. The only provision where the difference between the language employed in the body of the Act and the language employed in Annexure B, which is of relevance to the case on hand, is section 174(1). Therefore, let me now make a comparison. 42. In the body of the act, section 174(1) reads as follows : "174. Quorum for meeting.-(1) Unless the articles of the company provide for a larger number, five members personally present in the case of public company (other than a public company which has become such by virtue of section 43A), and two members personally present in the case of any other company, shall be the quorum for a meeting of the company." 43. In Annexure B to the above Rules, section 174(1) reads as follows : "174. Quorum for meeting.-(1) Unless the articles of the company provide otherwise, five members belonging to the class present in person or by proxy in the case of a public company (other than a public company which has become such by virtue of section 43A) and two members personally present in the case of any other company, shall be the quorum for a meeting of the cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otwithstanding anything to the contrary contained in the articles of the company. On the contrary, sub-section (2)(b) entitles a public company to frame its articles in such a manner that the provisions of sections 171 to 186 (except 176) are adopted with modifications and adaptations, in so far as meetings of any class of members are concerned. 47. Therefore, it is clear that the Act itself maintains a clear distinction between "the general meetings of a company" and "meetings of any class of members". While it is not permissible for a company to provide in its articles anything to the contrary than what is provided in sections 171 to 186, in so far as general meetings are concerned, it is certainly permissible for a company to adopt these provisions with modifications, insofar as meetings of any class of members are concerned. 48. Therefore, the prescription of a quorum of two members under article 18(a), even if contrary to section 170(1)(i), in so far as general meetings of the company are concerned, is in tune with section 170(2)(b) and section 174(1) as found in Annexure B referred to in rule 7 of the 1956 Rules, in so far as meetings of a class of members are concerned. Ev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to R. Subramanian. Though it was contended by learned counsel for Zash that the proxy form is of no value, as it did not contain any indication of the nature of the meeting, a perusal of the proxy form shows that there was a clear mentioning of the date, time, venue and the purpose of the meeting. Therefore, today, Zash Investment cannot be heard to contend that there was no participation on their behalf in the court convened meeting of the members held on 31-10-2008. 52. As a matter of fact, even as early as on 13-2-2009, Zash Investment had issued a legal notice to the managing director of the transferor. In the said notice, all that Zash Investment sought to do, was only to with draw the consent. If there was actually no participation, as contended by them, there could have been no consent and consequently, there would have been no occasion to withdraw the consent. Therefore, I reject the contention of learned counsel for Zash Investment that there was no participation on their behalf, in the Court convened meeting held on 31-10-2008. (iii) Whether consent can be withdrawn : 53. As seen from the narration of facts given in the preamble, the transferor had taken the consent o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... herefore, I do not think that the transferor can be held guilty of fraud and misrepresentation, though it might be possible to accuse them of mesmerising the shareholders and creditors to accord consent, by clever salesmanship. 57. Similarly, the transferor has filed a set of correspondence exchanged between them and various creditors on 15-9-2008 to show that the financial position of the company was also made known to them. They have also filed a set of correspondence to show that periodical reviews were undertaken. Therefore, I am unable to find as to what exactly were the material particulars that were actually withheld by the transferor from the creditors at the time of obtaining their consent. 58. In so far as the two shareholders, ICICI Venture and Zash Investments, are concerned, I do not know if between themselves, they can really point an accusing finger against the transferor, in the light of their own conduct. It is interesting to note that the ICICI Venture purchased 33 per cent of the shareholding in the transferor company for a total consideration of about Rs. 90 crores. But they off-loaded 10 per cent. of the shares by selling it to Zash for a total consideration ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e not willing to throw "stupid money around". (f)There is yet another mail dated 28-8-2008 sent by Sanjay Mehrottra to Asian Equities Prudential Asset Management (Singapore) Ltd. exploring the possibility of investment. (g)In a mail dated 1-9-2008 sent by Sanjay Mehrottra to one Arun Mehra, the representative of ICICI Venture sent a Financial model of the transferor. Even in that model, he had presented the projections up to March 2012, based upon certain presumptions. The projections given by him are so convincing that any investor would have been lured to bring equity. 59. Therefore, it is clear that even up to September 2008, ICICI Venture was looking for foreign investors, to bail the company out of the woods. They were taking the lead in scouting for foreign investors from July to September 2008 and gave consent for the scheme in the court convened meeting held on 31-10-2008. It is relevant to note that ICICI Venture had nominated their representatives in the board of directors of the transferor and they constituted the majority. Therefore, they cannot really feign ignorance of what was happening in the transferor company, except by coming up with a confession that such nom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs or class of creditors. The court can also order a meeting of the members or class of members and the court itself can prescribe the manner in which such meetings are to be called, held and conducted. 62. Under sub-section (2) of section 391, read together with the proviso thereunder, the court is obliged to take up the proposal for consideration, only if a majority in number representing three-fourths in value of the creditors or class of creditors or members or class of members, present and voting in person or by proxy agree to such compromise/arrangement. If the majority does not agree to the compromise/arrangement, the court may not take up the scheme for consideration at all. 63. Even if the majority (three-fourths) of the shareholders or creditors or any class of them, agree to the scheme, it is not necessary for the court to shut its eyes and sanction the scheme, since the court is not obliged to act as a mere rubber stamp. Under the proviso to section 391(2), the court cannot order the sanctioning of the scheme, unless it is satisfied that the applicant before the court had disclosed all material facts relating to the company, such as the latest financial position, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... td. v. Devani Ammal [1940] 10 Comp. Cas. 78 (Mad.) a Division Bench of this Court pointed out two things, viz., (i ) that if there was misrepresentation, the consent given by the shareholders and the creditors, would be of no avail ; and (ii) that if the company is hopelessly insolvent and the scheme confers no apparent benefit on anyone, the scheme cannot be accepted, even if the resolutions of the shareholders and creditors had been passed after a disclosure of the true position. Therefore, the grant of consent by itself, would not ensure free passage through all check posts. 67. Even after an order sanctioning a scheme is passed, the court is empowered, under section 392(1)(b), to order the modification of the scheme, if the court considers it necessary for the proper working of the scheme. Section 392(2) empowers the court even to order the winding up of the company, if it is satisfied that a compromise or arrangement already sanctioned under section 391, cannot be worked satisfactorily. 68. Interestingly, the power of the court under section 392(2), can be exercised both suo motu and also on an application filed by any person interested in the affairs of the company. In othe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is satisfied that the scheme cannot be worked satisfactorily with or without modifications, it can either suo moto or on an application by any person interested in the company's affairs order its winding-up." (p. 706) 72. Thus, section 392 gives scope for any person interested in the affairs of the company, to seek winding up of the company or the modification of the scheme. As pointed out earlier, such a person might have consented to the scheme or opposed the scheme or even remained neutral, in the meetings held for considering the scheme. 73. As a matter of fact, the word "consent" is not what is used in section 391(2). The word actually used therein is "agree". But by virtue of section 13 of the Contract Act, 1872, two or more persons agreeing upon the same thing in the same sense (ad idem), are said to have "consented". A consent which is not caused by coercion, undue influence, fraud, misrepresentation or mistake, is a free consent. 74. An agreement to which the consent of a party is caused by misrepresentation, is voidable at the option of such party. However, such an agreement may not be voidable (i) if the party whose consent was so obtained had the means of discoveri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transcends the level of a mere agreement/contract, when the application for sanction is considered by the court. The agreement reached in the meeting of the shareholders/creditors is a mere gate pass to gain entry into the next enclosure, where the court takes up for consideration, all other issues necessary for determining whether sanction should be accorded or not. At that stage, the right of the shareholder or creditor, to speak up and place all material facts necessary for the court to arrive at a proper decision, cannot be scuttled, merely by showing the consent that he gave in the meeting. 78. In view of the above, I am of the considered view that there could be no impediment for a shareholder or creditor, who gave consent to a scheme, in a meeting convened by the court, to come up before court and establish that the requirements of the proviso to section 391(2) are not satisfied by the applicant before the court. It is especially so, since such a person is entitled under section 392(2) even to come up after the sanctioning of the scheme and establish that the scheme cannot be worked satisfactorily. The objection so placed at the time of hearing of the main petition, need no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en all the creditors of the company received notice of the meeting, it must be presumed that those who did not attend left it to those who did to decide whether the agreement was advantageous or not, or they took so little interest in the matter that they did not think it worth their while to attend. At all events, under the Act of Parliament, only those creditors who were present at the meeting are to be attended to, and that three-fourths in value of those present are sufficient to sanction the contract. 50. Therefore, if the creditors who have been duly served with the notices of the meeting which was also accompanied by the scheme, if they do not choose to be present in the meeting and express their view one way of the other, the only inference that could be drawn is prima facie, they have no objection for the said scheme being approved. Any other interpretation in this regard would make it impossible for any company to get any of the schemes approved. If a mere absence of the shareholder or a creditor of the company has to be construed as opposition to the scheme which is proposed, then it would render section 391(2) of the Act redundant and certainly that was not the intenti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en to have forfeited his right to point out to the court, the deficiencies in the scheme. The sub missions made by such a person in the course of hearing of the application under section 391, if have any relevance or bearing on issues of public interest, can always be taken into consideration by the court. The submissions so made, need not necessarily be construed as adversarial, but can be construed as of assistance to the court, to enable the court to arrive at a conclusion as to whether the scheme deserves sanction or not. Therefore, the fourth point is answered accordingly. 85. Once it is concluded that the objections to the scheme, made by these persons can always be taken into account, then the next question that would arise for consideration, is as to whether the objections are of any significance. Therefore, let me now undertake a critical analysis of the objections to the scheme. A critical analysis of the objections : 86. In paragraphs 13 to 28 above, I have enumerated the objections of the shareholders and the secured and unsecured creditors to the scheme. A careful analysis of the objections filed by each one of them would reveal that in sum and substance, all the ob ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oviso to section 391(2) are disclosed by the applicant or not ? (ii)whether the procedure prescribed by section 393 for convening the meeting (if a meeting is ordered to be convened by the court) has been followed or not ? (iii)whether the consent of those, whose meeting was called for, was obtained as required by section 391(2) ? (iv)whether reports were received from the Registrar and the official liquidator, under the provisos under section 394(1), to the effect that the affairs of the company have not been conducted in a manner prejudicial to the interests of its members or to public interest ? and (v)whether a notice was given under section 394A to the Central Government and its views if any, received or not ? 89. None of the provisions of sections 391 to 394A stipulate that a company which is financially in the ICU (intensive care unit), has no right to seek sanction for a compromise/arrangement/amalgamation, so as to enable it to prolong its life span or even to become healthier. All that the court is obliged to see is, as to whether in the process of recovery of such a company, any of its shareholders or creditors or the public may be sucked into the ICU. Therefore, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d judge by order dated 28-8-2009. The order was also confirmed by the Division Bench on 5-11-2009 and in the special leave petition filed by the transferor, the Supreme Court issued a direction to hear and decide these petitions for amalgamation. 92. In the light of the above, I do not think that the non-impleadment of the provisional liquidator should deter me from considering these petitions. Moreover, it appears that the order dated 31-3-2009 passed by the learned Judge, appointing the provisional liquidator, became the subject-matter of challenge in O.S.A. Nos. 84 and 93 of 2009 and an order was passed by the Division Bench on 27-4-2009. Therefore, the objection relating to non-impleadment of the provisional liquidator, cannot be sustained. 93. A few creditors with whom the shares held in the-transferor company have been pledged as security, have objected to the scheme on the ground that the securities that they hold will get extinguished, if sanction is accorded to the merger, since the transferor company will cease to exist after the merger. But such a fear may not be well founded. Clause 7A.1 of the scheme of amalgamation prescribes that the transferee company shall issue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ors, no such disclosure was made in the explanatory statement to the shareholders. 96. But unfortunately, the two key shareholders viz., the ICICI Venture Funds Management Co. Ltd., and Zash Investment and Trading Co. Pvt. Ltd., who together hold about 33 per cent of the share capital, have not come up with such an objection. These two shareholders have admittedly given consent to the scheme and they have now come up with objections on a variety of grounds such as fraud, misrepresentation etc. But they have not contended in their objections that the above requirement was not fulfilled by the company. The objectors who have raised this issue, are not the shareholders. Therefore, their averment that the above requirement was not satisfied, is not borne out of first hand personal knowledge. Consequently, this objection cannot be sustained, in the absence of any of the shareholders raising it as a ground for going back on the consent given earlier. 97. One of the main objections raised by 2 major creditors namely, the ICICI Bank and the Kotak Mahindra Bank Ltd., is (i) about the circumstances surrounding the execution of a memorandum of understanding dated 26-7-2008 between the trans ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... censor to the licensee. (iii)The licensee shall pay Rs. 230 crore, out of the above said sum of Rs. 2,300 crore, on or before 15-8-2008. (iv)The balance sum of Rs. 2,070 crore, shall be paid on or before 15-10-2008. (d)The security deposit stated as above, shall be refundable by the licensor at the determination of the license agreement. The licensor and the licensee shall each separately have the option to renew the arrangements for a further period of 3 years on each expiry." 99. In the explanatory statement under section 393, issued to the members, at the time of convening the meeting of the shareholders, as per the orders of this court, a mention is made in paragraph 4(c) about the consent given by the members by way of a special resolution passed at the meeting held on 25-7-2008, for the business arrangement entered into by way of the above memorandum of understanding. It is only thereafter that the memorandum of understanding was entered into on 26-7-2008. 100. As per clause 3C of the memorandum of understanding, the transferee ought to have paid, on or before 15-8-2008, a sum of Rs. 230 crores towards part payment of the refundable security deposit of Rs. 2,300 crores. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the transferee company received the approval of the members to increase the authorised capital from Rs. 5.50 crores to Rs. 15 crores. It was in the very same meeting that they decided to issue 65,09,489 preferential warrants, each warrant carrying a right to subscribe to one equity share of Rs. 10 each of the transferee at a price of Rs. 3,618 per share. The preferential warrants themselves were allegedly issued, as per paragraph 11(c) of C.P. No. 239 of 2008, on 7-8-2008 and 8-8-2008, after receiving 10 per cent. of issue price per share viz., Rs. 361.80 per warrant. 103. If the averment contained in paragraph 11(c) of C.P. No. 239 of 2008 is true, R. Subramanian ought to have paid to the transferee company, a sum of Rs. 5,49,10,386 on 7-8-2008 (at the rate of Rs. 361.80 for 1,51,770 warrants). Similarly, the transferor ought to have paid to the transferee, on 8-8-2008, a sum of Rs. 230,02,22,734. 104. A combined reading of the averments in C.P. Nos. 239 and 240 of 2008 104 and the memorandum of understanding dated 26-7-2008 would show that by mutual adjustment, the transferor had shown payment of a sum of Rs. 230,02,22,734 on 8-8-2008 towards the price of preferential war ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at even in November 2008, the operations were on the verge of collapse and that the transferor was advised in January 2009 to resort to corporate debt restructuring. 107. Interestingly, the transferor who claims to have paid Rs. 230 crores to the transferee on 8-8-2008 for the preferential warrants, had actually committed default in payment of a sum of Rs. 1,76,49,680 towards payment of contribution to the employees' provident fund, employees' pension fund, employees' deposit linked insurance fund and the administrative charges thereto, for the period from June 2008 to September 2008, as seen from an order dated 19-2-2009 passed under section 7A of the Employees' Provident Fund and Miscellaneous Provisions Act, 1952. Mr. R. Subramanian, the promoter and managing director of the transferor had admitted before the Regional Provident Fund Commissioner, in the enquiry under section 7A that the EPF contributions for the period from June 2008 could not be remitted on account of a serious financial crisis and that all the sales outlets of the transferor ceased to function. He has further admitted that the establishment itself ceased to function from January 2009 due to financial problems ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lly inserted by way of an amendment under Act 31 of 1965. The amendment was brought forth, to give effect to the recommendations of the Daphtary-Sastri Committee based on the report of the Vivian Bose Commission of Inquiry. The relevant portion of the recommendations of the Committee reads as follows : "With the active support of the liquidator a scheme of amalgamation with respect of a company in voluntary liquidation was presented to the court and sanction of the court was obtained without disclosing material facts such as improper transfer of assets, the existence of an order for an investigation into the affairs of the company, and the latest financial position of the company and that of the transferee company. In order that the court may not proceed to sanction an arrangement or amalgamation with too little material on record and without information as to important facts which, if they were present before the court, would weigh heavily against the sanction of the scheme, it is necessary that the following provisions should be made : . . . (iii)The court should have power to call for the report of an auditor on the state of affairs of the company as on the date of the applica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t must be satisfied with regard to the latest financial position of the company'. In this context, as mentioned earlier, the judgment of the Delhi High Court in Bhagwan Singh & Sons (P.) Ltd. v. Kalawati [1983] 3 Comp. LJ 397/[1986] 60 Comp. Cas. 94, the meaning of words 'latest financial position' has categorically been held as the financial position should be when the matter is due for sanction. Obviously, it means, at the time of final hearing of the petition and this requirement is statutory since the Supreme Court in Miheer H. Mafatlal v. Mafatlal Industries Ltd. [1996] 87 Comp. Cas. 792/[1996] 4 Comp. LJ 124 , has categorically held that all the statutory requirements have to be strictly complied with before sanctioning amalgamation scheme. Therefore, what is required is the latest financial position at the time of final hearing of the application, i.e., at the time of sanctioning." (p. 684) 115. In Blue Star Ltd., In re [2001] 104 Comp. Cas. 371/[2000] 24 SCL 300, a learned judge of the Bombay High Court held as follows : "Reading all the judgments together, one can say that the relevant point of time for disclosing the latest financial position would be at the time of fil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... udits the accounts and prepares his report and the date on which the company petition is filed and the date on which it is actually heard, the learned judge pointed out that the requirement of the proviso to sub-section (2) of section 391 would mean the latest auditor's report for the period for which the accounts are audited or ought to have been audited. Nevertheless, the Court also pointed out, after referring to-the decision of the Bombay High Court in Zee Interactive Multimedia Ltd., In re [2002] 111 Comp. Cas. 733/ 39 SCL 534 that : "When there is a long gap between the date of filing and the date of hearing, the court is not powerless to ask for further details of the latest financial position as on the date of the hearing of the petition, or as near to the date of the hearing of the petition, as is reasonably practicable." 118. Despite the divergence of views, it is seen from a plain reading of the proviso to section 391(2) that the focus of the proviso is on : "The disclosure of all material facts relating to the company by the person making an application under section 391(1)." The emphasis on the disclosure of all material facts, formed the subject matter of the opin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acted once again for easy reference as follows : "(iii)The court should have power to call for the report of an auditor on the state of affairs of the company as on the date of the application for the sanction of the scheme, and such other matters as it considers necessary for the purpose of sanctioning the scheme." 121. Any doubt that one may have on the interpretation to be given to the word "latest" is dispelled by the relevant portion of the report extracted above. The emphasis therein is on the state of affairs of the company as on the date of the application for the sanction of the scheme. Therefore, it is clear that an applicant would have satisfied the requirement of law if he had filed the latest financial position and the latest auditor's report as on the date of filing of the application. 122. But it does not mean that if after the filing of the application for sanction, it is brought to the notice of the court that any material change adverse to the interests of the members and the creditors had occurred, the court should shut its eyes and just go by the latest financial position as on the date of filing of the application. One of the contours of the jurisdiction of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mitted that with the closure of all the shops, their access to the stocks/inventories in those shops, has become next to impossible. 125. If we look at the financial position of the transferor, as indicated in paragraph 6 of C.P. No. 239 of 2008, it is clear that the transferor is still shown as clinically alive, only on the ventilator of the inventories. Sans these inventories, the transferor is atleast clinically dead. A look at paragraph 6 of C.P. No. 239 of 2008 shows the following position, as per the unaudited accounts : Liabilities Rs. Assets Rs. Share capital 31,80,79,470 Fixed assets (net) 396,58,53,934 Reserves & surplus 215,45,68,509 Capital work in progress 14,17,23,846 Secured loans 639,99,98,660 Inventories 551,01,68,257 Unsecured loans 22,70,10,000 Sundry debtors 82,64,538 Deferred tax liability 15,77,32,779 Cash and bank 9,52,79,934 Loans and advances 119,43,95,980 Current liabilities & provisions 165,82,97,071 925,73,89,418 925,73,89,418 With the dissipation of stocks in entirety (valued at over Rs. 551 crores), the question of unavailability of the latest audited financial position, assu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t be bad if it is against public interest." (p. 39) 127. In J.S. Davar v. Dr. Shankar Vishnu Marathe AIR 1967 Bom. 456, Y.V. Chandrachud, J., speaking for the Division Bench pointed out that "the creditors of a company may agree to accept a fraction of the amount due to them from the company and yet, on considerations of more lasting importance, like public or commercial morality, the court may refuse to accept the verdict of the majority". The court further held as follows (headnote) : "It may also refuse to accept the scheme on the ground that it is not reasonable or that it is not feasible or that there is no chance that it will yield to a smooth and satisfactory execution. By 'reasonable' is generally meant that the arrangement cannot reasonably be supposed by sensible business people to be for the benefit of the class which they represent. The court will also not sanction the scheme if the facts which would have influenced the decision of the majority were not known or disclosed to the majority, or if the sponsors of the scheme have misrepresented the true position of the company." 128. More importantly, the court held that "if the acceptance of the scheme would lead to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usiness would reasonably approve. 131. Mr. R. Murari, learned counsel for the petitioner relied upon the decision of the Gujarat High Court in Core Health Care Ltd., In re [2007] 138 Comp. Cas. 304/ 79 SCL 47 , in support of his contention that the court is not really concerned with the commercial decision of the shareholders unless and until the court feels that the proposed merger is manifestly unfair or is being proposed unfairly and/or to defraud the other shareholders. In this case, the learned Judge of the Gujarat High Court equated the court to a supervisor, who cannot at all be treated as the author or a policy maker and who cannot, as a consequence, undertake the exercise of scrutinising the scheme, with a view to find out whether a better scheme could have been adopted by the parties. 132. In Modiluft Ltd. v. S.K. Modi MANU/DE/2730/2005, the Delhi High Court referred to the observations in Sussex Brick Co. Ltd. case (supra), wherein, the Chancery Division pointed out that to reject a scheme as unfair, it should be patently unfair, obviously unfair and unfair to the meanest intelligence and that "unfairness" in that context would mean patent unfairness, obvious unfairnes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d scheme, is obviously to raise huge funds both by way of debt and by way of equity. 137. Even as per paragraph 28 of C.P. No. 239 of 2008, the total amount due to 11 out of 12 secured creditors who attended the court convened meeting on 31-10-2008 worked out to Rs. 696.71 crores. This is in contrast to the figure indicated in paragraph 6 at Rs. 639.99 crores. There are also huge outstandings to the suppliers of goods and services and also to unsecured creditors. Therefore, in order to dispel any doubt, I directed learned counsel for the petitioners to submit an action plan. In response, learned counsel submitted a revival plan. In short, the revival plan projected by the petitioners is as follows : (i)The transferor company would restart operations in the regions of Tamil Nadu, Kerala, Karnataka, Andhra Pradesh and the National Capital of Delhi. (ii)A total of 738 super markets, 594 fruits and vegetables stores, 558 pharmacies, 110 telecom inclusive stores, 248 telecom exclusive stores and 7 warehouses, were to be opened. An estimated amount of Rs. 303 crores would be needed for putting necessary assets in place for these new shops/stores. This amount could be raised by (a) sal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... jections filed by the suppliers of goods and services, it is clear that the transferor will not be in a position to restart operations, as per the revival plan, by securing goods and services on credit basis any more. In this whole drama, the members of the public alone, are yet to become victims and the proposed amalgamation obviously seeks to reach out to the members of the public, as a last straw on the camel's back. 140. In such circumstances, it is my considered view that it may not be in public interest to sanction the scheme, as it would only result in millions of Peters being robbed to pay a few Pauls. The revival plan submitted by the petitioners, is based on several presumptions and surmises, some of which are as follows : (i)The first presumption is that the post-merger, the company would be able to raise equity to the tune of Rs. 250 crores. (ii)The second presumption is that the salvage value of the existing assets would be Rs. 252 crores, though admittedly the realisable value may only be a small fraction. (iii)The next presumption is that the creditors would agree to the scheme of compromise/arrangement for restructuring the debt. 141. Therefore, it goes without ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y failed to file its returns with the Registrar of Companies (RoC) for a period of two years; (b)If the company failed to file its returns with Stock Exchange (SE) for a period of two years (if it continues to be a listed company); (c)If the company is not maintaining its registered office at the address notified with the Registrar of Companies/Stock Exchange; and (d)If none of its directors are traceable. 144. Before the Joint Parliamentary Committee, which investigated the securities scam, it was pointed out by an association of investors that during the period from 1992 to 1996, about 15 million small investors came into the stock market through IPOs and that during the said period, a staggering amount of Rs. 86,000 crores were raised through public issues. The Joint Parliamentary Committee reported that though the number of companies which duped small investors ran into thousands, only 299 companies could be identified by the Monitoring Committee. The website of the Press Information Bureau provides the statistics relating to these companies. 145. In an order passed on 8-9-2000 in Appeal No. 7 of 2000 in Integrated Amusement Ltd. v. Securities and Exchange Bureau of India ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the proposed issue and all previous issues made in the same financial year in terms of issue size does not exceed five times its pre-issue net worth as per the audited balance-sheet of the preceding financial year; (e)if it has changed its name within the last one year, at least fifty per cent of the revenue for the preceding one full year has been earned by it from the activity indicated by the new name. (2) An issuer not satisfying any of the conditions stipulated in sub-regulation (1) may make an initial public offer if : (a)( i) the issue is made through the book building process and the issuer undertakes to allot at least fifty per cent of the net offer to public to qualified institutional buyers and to refund full subscription monies if it fails to make allotment to the qualified institutional buyers; or (ii)at least fifteen per cent of the cost of the project is contributed by scheduled commercial banks or public financial institutions, of which not less than ten per cent shall come from the appraisers and the issuer undertakes to allot at least ten per cent of the net offer to public to qualified institutional buyers and to refund full subscription monies if it fails ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of such convertible securities as well as that of resultant equity shares together shall be considered for the purpose of calculation of one year period referred in this sub-regulation : Provided further that the requirement of holding equity shares for a period of one year shall not apply : (a)in case of an offer for sale of specified securities of a Government company or statutory authority or Corporation or any special purpose vehicle set up and controlled by any one or more of them, which is engaged in infrastructure sector; (b)if the specified securities offered for sale were acquired pursuant to any scheme approved by a High Court under sections 391-394 of the Companies Act, 1956, in lieu of business and invested capital which had been in existence for a period of more than one year prior to such approval. (7) No issuer shall make an initial public offer, unless as on the date of registering prospectus or red herring prospectus with the Registrar of Companies, the issuer has obtained grading for the initial public offer from at least one credit rating agency registered with the Board. Explanation.-For the purposes of this regulation : (I)'net tangible assets' mean the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e is that even while committing default in payment of statutory dues, from June 2008 onwards, the transferor and the transferee have managed to bring entries on record as though a sum of Rs. 230 crores was exchanged as between themselves. Both the transferor and the transferee do not appear to have had so much of funds during the period from 8 to 15-8-2008 and yet they claim that the transferor paid Rs. 230 crores to the transferee and the transferee paid an equivalent amount to the transferor during the same period. The petitioners also claim that these payments were cheque payments, reflected in the books of account. Given the financial position of both, this could have been accomplished only by way of cross cheques issued by one to the other and the bank neutralising their effect by one credit entry and one debit entry. The companies which got engaged in such kite flying operations, cannot be allowed to enter into the public domain through stock market, since any amount of restrictions and conditions may not achieve the desired result. 149. Today, there are lot of winding up petitions pending against the transferor. There are also civil cases as well as criminal proceedings und ..... X X X X Extracts X X X X X X X X Extracts X X X X
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