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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 ..... hese petitions are by the transferor and the transferor companies, filed under sections 391 and 394 of the Companies Act, 1956, praying for sanctioning a scheme of amalgamation, with effect from 30-6-2008, so as to be binding on all the shareholders and creditors of both the companies and for the dissolution of the transferor company without being wound up. 2. I have heard Mr. R. Murari, learned counsel appearing for the petitioners, Mr. Vikram Trivedi and Mr. P.H. Arvindh Pandian, learned counsel appearing for the shareholders-objectors and M/s. A.L. Somayaji, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h. The issued, subscribed and paid-up capital as on 31-3-2008 is Rs. 5,05,01,000 divided into 50,50,100 fully paid-up equity shares of Rs. 10 each. (h)After the date of the latest audited accounts, certain changes took place in the financial position of the transferee company, including (i) an increase in the authorised capital from Rs. 5.5 crores to Rs. 15 crores by the creation of 95,00,000 equity shares of Rs. 10 each ranking pari passu with the existing equity shares, approved in the extraordinary general meeting held on 25-7-2008 ; (ii) the approval in the general 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y proxy and approved the scheme unanimously. (r)Therefore, with the approval so granted unanimously by the requisite majority of the shareholders as well as the secured creditors, the transferor has come up with this company petition. 5. In the body of the petition (C.P. No. 239 of 2008), the transferor company has also furnished the salient features of the scheme and the list of directors of the transferor as well as the transferee companies and the shares held by each one of them. In paragraph 20 of this petition, the transferor company has also furnished the list of secured 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nged after the scheme becomes effective, the Regional Director has not recorded any serious objection to the scheme. The Regional Director has also made a mention about a complaint received from an employee of the transferor to the effect that he had not received salary for the past 3 months on account of all shops of the transferor remaining closed. But he has indicated that clause 9 of the scheme protects the interests of the employees of the transferor. Thus, in effect, there is no substantial objection to the scheme from the Regional Director. 8. The official liquidator has filed a 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 credi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scheme tooth and nail. Similarly, some of the creditors such as the ICICI Bank Ltd., and Kotak Mahindra Bank Ltd. have filed objections to the scheme. As a matter of fact, the shareholders-objectors, ICICI Venture and Zash Investment as well as the creditor-objector ICICI Bank, had earlier given consent for the scheme. But, they have come up with serious objections, contending that the consent given earlier would not operate as estoppel. Prelude 11. Before we consider the merits of the scheme vis-a-vis the objections, a small prelude is essential, to have a clear understanding of the issues 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he proposed scheme. (e)Apart from giving consent to the proposal, the two key shareholders, viz., the ICICI Venture and Zash Investment also attempted to raise capital/debt for the transferor and the ICICI Venture went to the extent of lending Rs. 50 crores on 27-9-2008. (f)By an order dated 25-9-2008, passed in C.A. Nos. 2377 and 2378 of 2008, this court ordered a meeting of the shareholders and the meeting of the secured creditors to be convened, for considering the scheme of amalgamation. Accordingly, two meetings, (one, of the shareholders and the other, of the secured creditors) were held on 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r was passed after hearing, on 28-8-2009 admitting the company petition and directing paper publications as well as the publication in the Government Gazette to be effected. (m)In the meantime, the Cash and Carry Wholesale Traders Pvt. Ltd., one of the shareholders of the transferor company filed applications in C.A. Nos. 1066 and 1067 of 2009, for convening meetings of non-lender creditors and lender creditors of the transferor company for considering a scheme of arrangement/compromise under section 391 of the 1956 Act. The substance of the scheme of arrangement proposed by this shareholder-applicant was 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pon that finding, the company court will take up for hearing the winding up petitions (C.P. No. 26 of 2009, C.P. No. 68 of 2009 and other connected winding up petitions). Before concluding, we may state that the company court will decide the financial viability of the scheme of amalgamation uninfluenced by the observations made in the impugned judgment. Accordingly, the special leave petitions stand disposed of." (p)It is in pursuance of the above order of the Supreme Court that the petitions C.P. Nos. 239 and 240 of 2008 seeking sanction of the scheme of amalgamation were taken up for hearing. Justification 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 sc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y him and taking into account the circumstances prevailing at that time. (b)But, during the pendency of the proceedings for merger, the investor learnt that the financial position of the transferor was grim and that the affairs of the company were not conducted by the promoter, as was expected of him. (c)In the meeting of the board of directors of the transferor held on 22-11-2008, the managing director failed to give a satisfactory explanation on various issues raised by the nominee directors. He also failed to co-operate in conducting an independent review. (d)The investors were forced to withdraw their nominees from the 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 thro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nancials for the period ending 31-3-2008, 30-6-2008 and 30-9-2008 were furnished, the statement for the period ending 31-12-2008 was not furnished. The monthly MIS was also not furnished for any of the months, despite repeated requests made through several e-mails. (e)The audited financials for the year ending 31-3-2008 were not furnished. (f)In July 2008, the transferor sought the consent of the objector to the scheme that was already approved by the board of the transferor at its meeting held on 30-6-2008 and the objector accorded their consent, based upon the representations made by the board and also considering the financial position 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-paym ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t ledger extracts duly certified by the statutory auditors, showing the cash flows by and between them, after the execution of the memorandum of understanding dated 26-7-2008 ; (iii) a direction to the transferor and the transferee to disclose the details of all banking accounts operated by them ; and (iv) a direction to the promoter-managing director Mr. R. Subramanian to disclose on oath, the source of money for purchasing 1,51,770 warrants at the rate of Rs. 3,618 per warrant and for purchasing 1,090 shares of the transferee. 16. The objections raised by the ICICI Bank are as follows : (a)The total debts due and payable by the transferor to the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ards deposit and licence fee. (h)As per the averments contained in C.P. No. 239 of 2008, the transferor and its managing director R. Subramanian had jointly subscribed to the preferential allotment of warrants totalling to Rs. 65,09,489 at a prefixed price of Rs. 3,618 per share on 7-8-2008 and 8-8-2008. An amount of Rs. 361.80 per warrant, totalling to Rs. 230 crores is said to have been paid by the transferor to the transferee towards advance payment. But the date of payment is not indicated. It is stated in C.P. No. 239 of 2008 that R. Subramanian is already vested with 1,51,770 warrants and 1,090 shares in the transferee. The cost of acquisition of the 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 transf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 12-2008 and the transferor issued a cheque for Rs. 35 crores. But the cheque bounced, forcing the objector to initiate proceedings under section 138 of the Negotiable Instruments Act, 1881. (g)As on 17-1-2009, a sum of Rs. 38,66,88,190.87 is due and payable by the transferor and its managing director, together with an additional interest. In such circumstances, the objector opposes the scheme of amalgamation, as opposed to public policy and as a fraud perpetrated on the creditors. (h)According to the objector, the scheme cannot be sanctioned since (i) it is based on unaudited balance-sheet of the transferor; (ii) the transferee company has a net worth of Rs. 5.07 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 ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rvices rendered, totalling to an amount of Rs. 41,06,558 remain unpaid. (b)The scheme, if sanctioned, will be against public interest and also against the interest of unsecured creditors like this objector. 20. M/s. Aura Finance and Holdings Pvt. Ltd., Medhas Consultants Pvt. Ltd., Chafex Marketing Pvt. Ltd., CSK Properties and Investments Pvt. Ltd., Esvee Marketing Pvt. Ltd., and Analog Capital Managers Pvt. Ltd., have filed their statement of objections in common, the contents of which are as follows : (a)A share transfer agreement dated 12-4-2000 and a debenture transfer agreement dated 16-5-2000 and an agreement of pledge dated 12-4-2000, in connection with the transfer 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lders, in relation to the valuation of shares, for a proper consideration of the scheme. But the chairman's report does not indicate that any such opinion was placed before the shareholders. This requirement, intended to protect the minority shareholders and to provide transparency, does not appear to have been complied with. (i)The proposed scheme is nothing but a back door entry for providing liquidity and the listing option to the shareholders of the transferor, since they will be issued with the shares of the transferee company. But by this process, the valuable security given to the objectors will get extinguished. Even the letter issued by counsel for the promoters shows that they 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 u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd., is also an unsecured creditor, who made supplies of Nokia Cellular Mobile telephone products to the transferor. An amount of Rs. 9,32,69,205 is allegedly due as of November 2008 to the said company and hence a notice under sections 433 and 434 of the Companies Act, 1956, has already been served on the transferor. Therefore, they have objected to the scheme on the following grounds : (a)The transferee is only a shell company, which has had a miniscule turnover of just Rs. 2 lakhs, as per the 12th annual report for the year 2007-2008. There was no sale of groceries, indicating thereby that the transferor and the transferee are not in the same line of business, as claimed in the petitions 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... edules. 28. M/s. Shree Vignesvarra Hi-Tech Promoters is a partnership firm which had leased out their property at door No. 1095, Avinashi Road, Coimbatore. They have objected to the scheme on the ground that the tenant has no right to transfer his tenancy, without the express consent of the landlord. If the scheme is sanctioned, it would result in the transfer of tenancy, in violation of the provisions of the Tamil Nadu Buildings (Lease and Rent Control) Act, 1961. The transferor is in arrears of rent and has also not paid service tax. A proceeding for fixation of fair rent filed by the objector and a suit filed by the transferor are now pending. Therefore, they have objected to the scheme. Parameters 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 enli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sit in appeal over the commercial wisdom of the majority of the class of persons who with their open eyes have given their approval to the scheme even if in the view of the court there could be a better scheme for the company and its members or creditors for whom the scheme is framed. The court cannot refuse to sanction such a scheme on that ground as it would otherwise amount to the court exercising appellate jurisdiction over the scheme rather than its supervisory jurisdiction." After laying down the aforesaid 9 parameters, the Supreme Court also added a note of caution that the list was not exhaustive but only illustrative. 31. In addition to the above parameters, the Supreme Court has directed this court, by 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 vi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eeting of the members convened by the court was valid or not; (ii) whether Zash Investment can be said to have participated in the court convened meeting and accorded their consent; (iii) whether the consent already given, (if held to have been validly given), can be withdrawn and if so, under what circumstances ; and (iv) as to what is the effect of a decision taken unanimously or by majority, at the court convened meeting, upon a member or creditor, who chose to remain absent, despite being put on notice. (i) Validity of the meeting : 35. In a valiant attempt, Mr. P.H. Arvindh Pandian, learned counsel for Zash Investments, questioned the very validity of the court convened meeting on the ground that it was in violation 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... therein, cannot be said to have been vitiated. In support of his contention, Mr. R. Murari relied upon a decision of the High Court of Bombay and the provisions of Annexure B to The Companies (Central Government's) General Rules and Forms, 1956. 39. In Khandelwal Udyog Ltd. Acme Mfg. Co. Ltd., In re [1977] 47 Comp. Cas. 503 (Bom.), the dissentient shareholders, while opposing the scheme, contended that the companies did not make a proper disclosure as contemplated under section 173 and hence, the resolutions passed by the majority, at the meetings convened for the purpose, were a nullity. While dealing with the said contention from paragraph 21 onwards, the Bombay High Court pointed out that all the provisions from sections 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 : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d (b) of sub-section (1) of section 642, stipulates that sections 171 to 186 shall apply with respect to meetings of any class of members of a company, as adopted and modified in the form set out in Annexure B. However, the proviso to the rule makes it clear that the application of sections 171 to 175 and 177 to 186, as in Annexure B shall be subject to such other provisions as may be made either in the articles of the company or in a contract binding on the persons concerned. 41. Annexure B to the above Rules contains the "Form in which sections 171 to 186 of the Act are to apply with respect to meetings of any class of members of the company". It is not necessary for us in this case, to find out all the differences between sections 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 c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e-holders of a company, in like manner as it applies with respect to general meetings of the company. (b) Unless the articles of the company or a contract binding on the persons concerned otherwise provide, sections 171 to 175 and sections 177 to 186 with such adaptations and modifications, if any, as may be prescribed, shall apply with respect to meetings of any class of members, or of debenture-holders or any class of debenture-holders, of a company, in like manner as they apply with respect to general meetings of the company." 46. A clear distinction is maintained between sub-section (1) and sub-section (2) of section 170. Sub-section (1) makes the provisions of sections 171 to 186 applicable to general meetings of a public company, notwithstanding 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 m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent did not attend the meeting. But this contradiction was later explained in the form of an affidavit. 51. However, I do not think that Zash Investment can really make a mountain out of a mole hill, for two reasons. The first is that the transferor company had made paper publications, in one edition of the English daily Business Line and in one edition of the Tamil daily Daily Thanthi on 7-10-2008. Even the individual notice sent by the transferor, for the court convened meeting, was admittedly served on Zash Investment, on 29-10-2008, as seen from the admission made by them in paragraph 4.4 of the rejoinder filed on 24-4-2009. The second is that even according to Zash, their authorised representative had handed over signed unfilled proxy forms 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that there was suppression of material facts. But in the same breath, the bank admits that their representatives attended the court convened meeting on 31-10-2008 without knowing the consequences of the memorandum of understanding. Therefore, in effect, they were at least put on notice of the memorandum of understanding, in the statement accompanying the notice for the court convened meeting. ICICI Bank cannot also plead that they were totally unaware of the financial position of the company, since the transferor had committed default in payment of interest even from July 2008, despite which the bank gave consent in the meeting held on 31-10-2008. As a matter of fact, most of the creditors including ICICI Bank agreed to a CDR Scheme only thereafter. Therefore, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y had more than 1,500 stores, while as a matter of fact, all the shops had been closed. (d)Another mail dated 26-8-2008 sent by Sanjay Mehrottra to one Frances Dydasco shows that ICICI Venture was all praise for Subhiksha for being asset disciplined, building revenues of more than Rs. 2,300 crores with just a net owned fund of hardly Rs. 250 crores. Interestingly, Frances sent a reply on the same date pointing out his discomfort and indicating that he was not sure why there was a rush. (e)A mail dated 4-9-2008 sent by Sanjay Mehrottra to one Navroz Udwadia of Eton Park International LLP, London shows that ICICI Venture explored even the European Capital Market. But, Navroz Udwadia had replied that though they were excited about the business model, they were 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll willing to offer a loan to the transferor, without any kind of due diligence. Therefore, I do not wish to decide the issue of the right of the shareholders and the creditors to withdraw their consent, on the basis of allegations of fraud and misrepresentation. 61. However, that will lead us to the next question as to whether they are still entitled to withdraw their consent, atleast in view of the subsequent position of the company, even if not on account of fraud or misrepresentation. In order to find an answer to this question, it is necessary to have an understanding of the scheme of sections 391 to 394. Under section 391(1), the court is empowered, whenever an application is presented proposing a compromise or arrangement, to order a meeting of the creditors 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the latest financial position, pendency of any investigation and.the like. 66. Thus, the according of consent, is the first and foremost step in the entire process, if the court chooses to pass an order convening a meeting. The court may also dispense with the convening of the meeting, under certain circumstances; about which we are not concerned at present. However, it is to be noted that on the one hand, if the court chooses to convene a meeting and consent could not be obtained in such meeting, the proposal gets aborted even at the initial stages. On the other hand, the grant of consent by itself, does not always ensure the seal of approval, since the scheme has to pass through the other two check posts, before it is allowed to reach its destination. In Calicut Bank Ltd. 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... worked satisfactorily, is of great significance. The expression "any person interested in the affairs of the company" is wide enough to include (i) a person who gave his consent; (ii) a person who remained neutral as well as ; (iii) a person who opposed the scheme, but formed part of the minority and who consequently became bound by the scheme under section 391(2). 71. Explaining the scope of section 392, the Supreme Court held in J.K. (Bombay) (P.) Ltd. v. New Kaiser-I-Hind Co. Ltd. [1970] 40 Comp. Cas. 689: "Under section 392 of the Act the High Court which has sanctioned the scheme has the power to supervise the carrying out of it and to give directions in regard to any matter or to make modifications in it as it may consider necessary for its proper working. But if the court 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, s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n on creditors and shareholders who dissented from or opposed to its being sanctioned. It has statutory force in that sense and therefore cannot be altered except with the sanction of the court even if the shareholders and the creditors acquiesce in such alteration [Smt. Premila Devi v. Peoples Bank of Northern India Ltd. [1939] 9 Comp. Cas. 1 (PC)]. The effect of the scheme is 'to supply by recourse to the procedure thereby prescribed the absence of that individual agreement by every member of the class to be bound by the scheme which would otherwise be necessary to give it validity'. (Palmer's Company Law, 20th edn. 664)." (p. 711) 77. Therefore, the agreement reached in the court convened meeting, by a majority of the shareholders and/or a majority of the creditors, to have a scheme, 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... served with notice. The learned Judge of the Bombay High court pointed out in paragraph 20 of his decision that if the objectors were so keen and serious, it was their fundamental duty and also responsibility to have attended the meetings convened for the purpose of approval of the scheme. 81. In Maharashtra Apex Corp. Ltd., In re [2005] 124 Comp. Cas. 637/ 57 SCL 305 (Kar.), relied upon by Mr. R. Murati, learned counsel for the petitioner, an argument was advnaced, while opposing a scheme, to the effect that if a person did not attend the meeting, it must be inferred that he did not accord his approval to the scheme. Rejecting the said contention, the Karnataka High Court held as follows : "49. In fact, in Bessemer Steel and Ordinance Company, In re [1875-76] 1 Ch. D 251 it was held that when 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 mee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd a meeting, he may at the most be bound by the decisions taken at the meeting, by a majority. But, it cannot be construed as amounting to an implied consent. Construing the absence of a person as amounting to implied consent, may lead to absurd consequences. Say for example, the majority of the members present at the meeting reject the scheme. Can it then be construed that those who remained absent, should be taken to have approved the scheme, by virtue of their absence, by construing such absence as implied consent ? I hope not. 84. Therefore, the contention that a person, who did not participate in the court convened meeting, should be taken to have accorded his implied consent, cannot be accepted. In any case, in view of the indications contained in section 392(2), such a person cannot be taken 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts of the transferor company have been closed and the business has come to a grinding halt is also not disputed. 88. But these facts by themselves, are not sufficient to reject a scheme as unviable. The reason is that the object behind Chapter V dealing with compromises, arrangements, reconstructions and amalgamations, is not merely to enable healthy companies to re-arrange their affairs, but also to help unhealthy and sick ones to recover and recoupe. This is why, the very expression "company" appearing in sections 391 to 393, is defined in section 390(a) to mean a company liable to be wound up under the Act. What the court is obliged to examine when an application is presented under section 391 or 394 can be categorised as follows : (i)whether all material facts relating to the company, as provided by the proviso 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 fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le Traders Pvt. Ltd., for convening a meeting of the creditors for considering a scheme of arrangement came up for hearing. Even at that stage, the creditors opposed the very convening of the meetings on the ground that no purpose would be served by convening any meeting. Consequently, these petitions C.P. Nos. 239 and 240 of 2008 were also proposed to be taken up together for hearing along with those applications of the shareholders for convening meetings. But the proposal was objected to by the transferor company on the ground that the petitions for considering the scheme of amalgamation could be considered effectively only after the arrangement proposed by the shareholder was considered. Therefore, the applications of the shareholder proposing a scheme of arrangement were taken up and they were dismissed by the learned 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 fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ride or circumvent the provisions of the security laws or stock exchange requirements, certain provisions are made in sub-clauses (f), (g) and (h ) of clause 24 of the listing agreement. Under sub-clause (f), the company is obliged to file a copy of the scheme with the stock exchange for approval, at least a month before it is presented to the court. This requirement has admittedly been complied with by the transferee and a copy of the letter of consent given by the Madras Stock Exchange has also been filed. Under sub-clause (h) of clause 24 inserted by the circular SEBI/SMD/Policy/List/Cir-17/2003, dated 8-5-2003, the company is obliged to disclose in the explanatory statement forwarded under section 393, the pre and post arrangement or amalgamation capital structure and shareholding pattern. According to some of the objectors, 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 admitt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ments presently vested with the licensor including the use of all its premises owned or leased or otherwise in its possession infrastructure including IT and the services of the employees. The right of use of premises will include the right to use offices, warehouses and shops. (b)The license also includes the right of use of Brands, Trademarks, Service Marks, Goodwill etc., which belong to and are presently used by the licensor. The licensee shall also be allowed to use all supply chain infrastructure including contracts etc., with the vendors. (c)( i)The licensee shall pay the licensor a licence fee at the rate of Rs. 138 crore per annum payable annually in arrears. (ii)The licensee shall pay a refundable security deposit of Rs. 2,300 crore, on which interest at 6 per cent per annum will be paid annually in arrears by the licensor 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 licens ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... C.P. No. 240 of 2008, the financial status of the transferee and the size and level of operations of the transferee are reflected. It is seen from the audited balance-sheet as on 31-3-2008 that the "sources of funds" of the transferee comprised of the share capital of Rs. 5,05,01,000, reserves and surplus of Rs. 96,186 and profit and loss account of Rs. 1,15,535 totalling to Rs. 5,07,12,721. The cash and bank balance are shown as Rs. 1,20,679, other current assets are shown as Rs. 2,55,538 and loans and advances shown as Rs. 5,04,75,013. 102. It is not known as to how a company of the size as above mentioned, entered into a memorandum of understanding on 26-7-2008, agreeing to make a refundable security deposit of Rs. 2,300 crores, within a short span of 3 months. As a matter of fact, it was only in the general meeting held on 25-7-2008 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. 3,6 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s it was in the process of executing the said large expansion without being able to secure funds required for such expansion thereby resulting in the complete choking up of cash flow and strain in payments to all concerned post July 2008." 106. If the financial position of the transferor from July 2008 was what is reflected above, it is not known how they managed to pay Rs. 230 crores on 8-8-2008 to the transferee. Even assuming for the sake of argument that this payment had been made on 8-8-2008, then the transferee ought to have paid Rs. 230 crores on 15-8-2008 and Rs. 2,070 crores on or before 15-10-2008. Therefore, after 15-10-2008, the financial condition of the transferor ought to have become more than stable. But on the contrary, it is admitted in paragraph 5(q) and 5(s) of the affidavit in support of C.A. Nos. 1066 and 1067 of 2009 that 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore 30-12-2008, it could not be accomplished. Therefore, the unaudited accounts as on 31-3-2008 alone are available before this court, in so far as the transferor is concerned. This is why, all the objectors have raised a serious objection that without complying with the mandatory requirement of submitting the latest audited accounts, the petitioners are not entitled to seek the approval of this court for the scheme. 110. As pointed out earlier by me, the proviso to section 391(2) mandates that no order sanctioning a compromise or arrangement shall be made unless the court is satisfied that the applicant before the court had disclosed all material facts relating to the company such as (i) the latest financial position of the company and (ii) the latest auditor's report on the accounts of the company. 111. The proviso to section 391(2) was actually 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 l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n were to be heard almost after two years and in that event, to say that the petitioner need not disclose the latest financial position would render the whole objective absurd. If one were to look at the provisions regarding amalgamation scheme, the time appears to be the essence in approval of such schemes. In fact, within the time prescribed, the meeting has to be held, and within 15 days, the chairman has to file his report in this court and within a week thereof, the petition has to be presented in this court so as to enable the court to consider the amalgamation scheme at the earliest. In a given case the petition may come up for hearing after three or four years and to say that the petitioner need not disclose the latest financial position of the company would render the entire objective meaningless. It is pertinent to note that the words used 'court 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and loss account and the auditor's report as on the date when the application for sanction under section 391 is made but, should also produce the latest balance-sheet, profit and loss account and the auditor's report as on the date when the matter is actually heard by the court, especially when there is long gap between the date of the application and when the court considers the scheme for sanction." (p. 22) See Blue Star Ltd.'s case ( supra) : 117. In Magnaquest Solutions (P.) Ltd., In re [2008] 141 Comp. Cas. 728/[2007] 80 SCL 496 , a learned Judge of the Andhra Pradesh High Court held that : "The words 'latest auditor's report' connotes the latest auditor's report available or which should normally be available at the time of filing of the petition." (p. 747) After pointing out that there will always be a time gap between the date on which the auditor audits 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 aud ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oes not arise the necessity of placing the material before the concerned persons." (p. 385) 120. The reference in the proviso to (i) the latest financial position of the company (ii) the latest auditor's report on the accounts of the company; and (iii) the pendency of any investigation proceedings in relation to the company, are all actually in relation to the obligation of the applicant before the court to make a disclosure. Therefore, the applicant would have satisfied the requirement of the proviso to section 391(2), if in his application, he had disclosed, by affidavit or otherwise, all material facts including the above three facts. That this was the object of the law makers in inserting the proviso to section 391(2), is borne out by the recommendations of the Daphtary-Sastri Committee Report, which I have extracted earlier. The relevant portion of the report is extracted 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 sch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unts were to be audited and laid in the annual general meeting to be convened on or before 30-12-2008. Since the petitions were filed on 11-11-2008 and the audited results were to be placed before the annual general meeting by 30-12-2008, there was justification for the transferor, not filing the audited results. 124. But what happened after 30-12-2008, has actually changed the complexion of the game. Neither by 30-12-2008 nor even by 30-12-2009, the transferor has been able to get the financial position of the company for the year ended 31-3-2008/30-6-2008, audited and presented before the court. The reason appears to be that all the 1,600 or more retail shops run by the transferor have been closed and the inventories valued at Rs. 551 crores by the transferor, are said to have evaporated into thin air. Though the transferor has fought shy of admitting this fact, they have admitted 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... et. It is a dynamic concept which keeps on changing. It has been explained in Black's Law Dictionary, as 'something in which the public, the community at large, has some pecuniary interest, or some interest by which their legal rights or liabilities are affected. It does not mean anything so narrow as mere curiosity, whereas the interest of the particular locality which may be affected by the letters in question. Interest shared by citizens generally in affairs of local, State or National Government'. It is an expression of wide amplitude. It may have different connotation and understanding when used in service law and yet a different meaning in criminal law or civil law and its share may be entirely different in company law. It's perspective may change when merger is of two Indian companies. But when it is with a subsidiary of a foreign company the consideration may be entirely different. It is not the interest of the shareholders or the employees only but the interest of the society which may have to be examined. And a scheme valid and good may yet 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. Chandrac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w, the Indian Law enjoins a duty on the court to examine objectively whether or not, the merger is violative of public interest, the court held that "a valid and good scheme may yet be bad if it is against public interest or if it is a device to evade the law." (p. 755) 130. However, in Maknam Investments Ltd., In re [1996] 87 Comp. Cas. 689/[1995] 6 SCL 93 (Cal.), relied upon by Mr. R. Murari, learned counsel for the petitioner, the Calcutta High Court referred to the decision of the Chancery Division in Sussex Brick Co. Ltd., In re [1960] 30 Comp. Cas. 536 (CD) wherein, it was held that the person opposing the scheme should affirmatively establish that notwithstanding the view of the majority, the scheme is unfair. The court also referred to the decision in Hindustan Lever Employees' Union's case (supra) wherein, it was pointed out that the power of the court is only to be satisfied whether the provisions of the Act has been complied with, whether the class or classes of persons are fully represented and whether the arrangement is such that a man of business would reasonably approve. 131. Mr. R. Murari, learned counsel for the petitioner relied upon the decision of the Gujara ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation was surrendered to the Reserve Bank of India. It is also a listed company with the Madras Stock Exchange. The Madras Stock Exchange has granted in principle approval to the scheme by a letter dated 5-8-2008 on condition that at least 25 per cent of the shares issued to the promoters would be locked in for 3 years and the balance for one year. However, the transferee has admitted in paragraph 21 of C.P. No. 240 of 2008 that they have already addressed a letter to the Madras Stock Exchange to delete the condition and their request is pending consideration. The transferee has also made an application on 14-8-2008 to the Calcutta Stock Exchange Association Ltd., for listing its shares. By a letter dated 16-10-2008, they have permitted the trading of the shares. 136. Under clause 7A.8 of the proposed scheme, the new equity shares of the transferee company issued to the members of the transferor shall be listed and/or admitted to trading on the stock exchanges, where the shares of the transferee company are listed. Therefore, the whole idea behind the proposed 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Total 803 Total 803 (v)But learned counsel for the petitioners has also indicated in the revival plan that the plan submitted to the court, was based on certain presumptions, which are as follows : (a)Infusion of Rs. 150 crores, as equity at par. (b)Infusion of Rs. 100 crores, as fresh debt/debt convertible into equity. (c)Incorporating the effect of debt restructuring as per the scheme proposed by the shareholder under section 391 of the Act. (d)Utilisation of Rs. 51 crores, of the infused cash to create the balancing investments in the fixed assets. 138. It is claimed by the petitioners that the above revival plan has been vetted by the Credit Rating Agency ICRA Limited, with an observation that it would be viable (i) if reduction of debt as per the scheme of arrangement is achieved; and (ii) if the infusion of Rs. 250 crores into the company as equity is possible. 139. Thus the revival plan makes it clear that the transferor, who is not in a position to raise funds through any other means, has come up with the last available option viz., that of raising public equity. It is pertinent to note that all channels ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r Rs. 34,000 crores through "rights issues" at very high premia. Most of these companies simply vanished into thin air in no time, leaving investors high and dry. On 20-12-1996, a query was raised in the Lok Sabha about the number of companies which made their public issue from 1992 onwards and thereafter had become untraceable. The question was a sequel to certain reports that in the early 1990s, several companies appeared as comets in the horizon of financial market and disappeared with huge amounts of money collected from the public. Those companies came to be known popularly as "Vanishing Companies". Therefore, a public interest litigation was filed in 1998 on the file of the Lucknow Bench of the Allahabad High Court, which issued certain directions that actually paved the way for certain reforms. 143. Thereafter, the Ministry of Corporate Affairs and the Securities and Exchange Bureau of India jointly set up a Co-ordination and Monitoring Committee (CMC) in 1999 for identifying companies which raised money from the public and later became untraceable. A Task Force was set up for each Region to assist the CMC in identifying vanishing companies. In the meeting held on 1-7-2000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ments) Regulations, 2009," in exercise of the powers conferred by section 30 of the Securities and Exchange Board of India Act, 1992. Chapter II of these Regulations lays down "common conditions for public issues and rights issues". Similarly, Part I of Chapter III prescribes "the eligibility requirements". Regulation 26 contains the conditions for Initial Public Offer (IPO) and it reads as follows (see [2009] 151 Comp. Cas. (St.) 127, 145) : "26. (1) An issuer may make an initial public offer, if : (a)it has net tangible assets of at least three crore rupees in each of the preceding three full years (of twelve months each), of which not more than fifty per cent are held in monetary assets : Provided that if more than fifty per cent of the net tangible assets are held in monetary assets, the issuer has made firm commitments to utilise such excess monetary assets in its business or project; (b)it has a track record of distributable profits in terms of section 205 of the Companies Act, 1956, for at least three out of the immediately preceding five years : Provided that extraordinary items shall not be considered for calculating distributable profits; (c)It has a net worth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar of Companies there are any outstanding convertible securities or any other right which would entitle any person any option to receive equity shares after the initial public offer : Provided that the provisions of this sub-regulation shall not apply to : (a)a public issue made during the currency of convertible debt instruments which were issued through an earlier initial public offer, if the conversion price of such convertible debt instruments was determined and disclosed in the prospectus of the earlier issue of convertible debt instruments; (b)outstanding options granted to employees pursuant to an employee stock option scheme framed in accordance with the relevant Guidance Note or Accounting Standards, if any, issued by the Institute of Chartered Accountants of India in this regard. (6) Subject to provisions of the Companies Act, 1956 and these regulations, equity shares may be offered for sale to public if such equity shares have been held by the sellers for a period of at least one year prior to the filing of draft offer document with the Board in accordance with sub-regulation (1) of regulation 6 : Provided that in case equity shares received on conversion or ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccounting standards of the Institute of Chartered Accountants of India have been followed; (iii)the financial statements present a true and fair view of the firm's accounts; (IV)In case of an issuer formed out of a division of an existing company, the track record of distributable profits of the division spun-off shall be considered only if the requirements regarding financial statements as provided for partnership firms in Explanation III are complied with; (V)'bid-ask spread' means the difference between quotations for sale and purchase; (VI)The term 'infrastructure sector' includes the facilities or services as specified in Schedule X." 147. It was submitted by Mr. R. Murari, learned counsel for the petitioners that by prescribing a lock-in period of 3 years for 25 per cent of the shares issued to the promoters and a lock-in period of 1 year for other shares, the Madras Stock Exchange has already taken care of this contingency. Learned counsel also submitted that this court can also impose any other condition, for safeguarding the interests of the members of the public, while sanctioning the scheme. 148. But given the financial status of the transferor and the transf ..... X X X X Extracts X X X X X X X X Extracts X X X X
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