9911796707
TMI Blog2016 (10) TMI 212X X X X Extracts X X X X X X X X Extracts X X X X ..... applicant Mr. Sanjay Kumar Gupta, Official Liquidator ORDER BY THE COURT REPORTABLE This matter comes up on the second motion under Sections 391 to 394 of the Companies Act, 1956 (hereinafter `the Act of 1956') read with Rule 57 of the Company (Court) Rules 1959 (hereinafter `the Rules of 1959') seeking sanction of the scheme of arrangement between M/s. Sistema Shyam Teleservies Limited (hereinafter `the Transferor Company') and M/s. Reliance Communication Limited (hereinafter `the Transferee Company') and their respective shareholders and creditors for transfer of the telecom business undertaking of the Transferor Company to the transferee company on an ongoing business basis concern consisting of assets/ liabilities set out in the scheme. The facts of the case are that the Transferor Company whose registered office is situate at MTS Tower Anmrapali Circle, Vaishali Nagar, Jaipur within the jurisdiction of this court moved the first motion under Sections 391-393 of the Act of 1956 Act for holding meetings of its shareholders and unsecured creditors for considering and approving the scheme of arrangement in issue. Vide order dated 29-1-2016 it was directed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... S $300 Million in Indian rupees equivalent as per the terms of the Earn Out Deed executed on 2-11-2015 between the Transferor Company, the Transferee Company and STA Capital LLC, Moscow Russian Federation. The scheme in issue provides that following the transfer and of "vesting of the Transferred undertaking" (telecom business) the Transferor Company will continue to pursue its interests in the "remaining business" which is also being presently carried out by it with greater focus to encash the available opportunities in the said business areas. The rationale for the proposed scheme has been stated to be that the transfer of the telecom businesses will result in multiple benefits to the Transferor Company such as deleveraging its balance-sheet, reduction of debt and interest outgo thereon, creation of value for its shareholders aside of facilitating the telecom and wireless business of the Transferee Company in which the Transferee Company would have acquired substantial percentage of equity interest. It has been contended that the scheme of arrangement in issue is compliant with all applicable laws and an undertaking to comply with mandatory laws following the sanction of the sche ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ransferor company who have an option under the scheme proferred to seek exit from the transferor company by opting for shares of transferee company, a listed entity. Mr. Rastogi further submitted that aside of the aforesaid, as the proposed swap ratio of the equity shares in the transferred company for the equity shares in the transferee company as per clause 9 of the scheme is 11.5:1, resultant fractional shares in the hands of the shareholders who opt for swap of shares is an inevitability, yet the scheme is silent about the treatment of such shares in the hands of the "swap shareholders" of the transferor company as no arrangement in respect thereof has been provided either in the scheme, in the petition or in the affidavits. It was also submitted that valuation report relevant to the scheme for the transfer and vesting of the telecom assets is without requisite details of calculation on which valuation of telecom business assets of transferred company was made and therefore the entire scheme approved by the equity shareholders in the absence of the above "material facts" deserves to be rejected. Mr. Rastogi further submitted that the rights shares issued by the transferor comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o.IA 16978/2016 therefor having been filed before this court in the petition on the second motion. It was submitted that EOD is part of consideration for transfer and vesting of telecom assets of the transferor company with the transferee company and its contents are thus material facts mandatorily required to be disclosed. It was pointed out that the importance of EOD is manifest from the fact that the Indian Rupees equivalent of upto approximately Rs. 1950 crores receivable thereunder constitutes the major portion of the consideration as the valuation of 276,5553,305 shares also to be allotted to the transferor company by the transferee company as other part of consideration at the face value of Rs. 5 works out to a far lesser amount of Rs. 138,27,66,525/- (Rupees One Billion thirty eight crore twenty seven lacs sixty six thousands five hundred and twenty five only). It was submitted that terms and conditions of the EOD are thus an indispensable and integral part of the scheme which was required to be placed before the rights shareholders and creditors of the transferor company at the court convened statutory meetings under section 391 of the Act of 1956 to facilitate proper unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Mr. R.D. Rastogi further submitted that in fact the approving resolution on 30-10-2015 passed by the Board of Directors of the Transferor company in respect of the scheme of which sanction is sought, oddly states to have considered the EOD and merger agreement, both dated 2-11-2015 i.e. signed two days subsequent to the meeting of the Board of Directors. The fraud on which the scheme is based is thus evident, Mr. Rastogi submitted, as the Board of Directors in its meeting of 30-10-2015 would not have had access to documents not then in existence. Mr. Rastogi further submitted that the scheme of agreement provides for receipt of Indian Rupees equivalent of upto US $300 Million under the EOD directly to the General Reserve account of the transferor company, whereas as per generally accepted accounting principles such amount of profit accruing from the sale/ transfer of the telecom assets of the transferor company should go and reflect in the "profit and loss account" of transferor company. It was submitted that clause 11.1.2 of the scheme provides that excess of the value of the net assets (i.e. value of assets as reduced by value of liabilities which have been transferred pursuan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Company, Ahmadabad buttressing the contention raised in the objection of the Regisional Director filed on 17-5-2016 and 14-7-2016. A further affidavit was then also filed, as directed by the court, by the Regional Director, North Western Region to justify the need of the opinion of the Chartered Accountant being filed at the stage of final hearing. Mr. Rastogi submitted that in the circumstances and reasons of objections set up the sanction of scheme as sought by the transferor company is in the eye of the proviso to Section 391(2) of the Act of 1956, plainly contrary to public interest being a device to defraud revenue and avoid tax and hence the scheme be rejected. Reliance was placed on the judgment of this court in the case of Uma Enterprises Ltd., S.B. Company Petition No.14/2012 decided on 12- 2-2016 to submit that where this court found that the scheme was designed to defraud the revenue and evade tax it is rejected as being contrary to public interest. He submitted that this scheme should be rejected. Mr. P. Chidambram, and Mr. Parag Tripathi, Senior counsel appeared for the transferor company through the hearing of the petition, on different dates. Mr. P. Chidambram subm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y an overwhelming majority of the equity shareholders (99.88%) and unsecured creditors (99.61%) in court convened meetings. Mr. P. Chidambram further submitted that no provision of law mandatorily requires the shares of the Transferee company to be issued to shareholders of a transferor company when it transfers its assets to a transferee company in a scheme of arrangement or otherwise. The Transferor is the transferor company in its corporate capacity not its shareholders. It has been submitted that in any event upon the sanction of the scheme and upon the listing of new equity shares (defined in the scheme) allotted to the Transferor company by the Transferee company the "swap shareholders" will have the option to exchange their equity shares in the transferor company for shares of the transferee company in accordance with the approved share swap ratio of 11.5:1 following a notification in regard thereto by the transferor company to its shareholders within the time frame already specified. Clause 9.7 of the scheme clearly provides for a process for notification for swap/ exchange of shares by the transferor company to its shareholders. Mr. P. Chidambram then submitted that conce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... existence it and its directors if found responsible for the alleged contravention would accordingly be subject to any proceeding, if initiated in accordance with law by the ROC or any other statutory authority. It was also pointed out that the objection of the Registrar of Companies with regard to the alleged lack approval of the Central Government to the remuneration paid to Directors/ employees of the Transferor Company, was in any event, completely misconceived and devoid of merit. The remuneration in issue pertains to financial year 2014-15 for which no approval of the central government was required with reference to the notification dated 14-7-2011 issued by the Ministry of Corporate Affairs in exercise of powers conferred under Section 6(1) of the Act of 1956, as also the notification dated 31-3-2014 issued by the Central Government in exercise of powers conferred under Section 4(1) of the Act of 1956. On the issue of the provisional balance sheet as on 31-3-2016 not being filed, it was submitted that company application No.13/2016 on the first motion was filed in January, 2016 for convening the meetings of the equity shareholders and unsecured creditors of the transferor c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... On the Registrar's concern about the subsistence of the transferor company's telecom business, it was submitted that all subscribers of the transferor company shall continue in accordance with their existing plans, subject to any change or revision of such plans subsequent to the scheme becoming effective. All changes would be compliant with law and requisite statutory reportage would be done by the transferee company to the Telecommunication Regulatory Authority of India. Mr. P. Chidambram emphatically submitted that the share exchange ratio of eleven and half shares of the Transferor Company for one share of the Trasnferee company provided for in the scheme is clearly beneficial to the equity shareholders of the transferor company as the independent experts, the Chartered Accountant S.R. Batliboi & Co. LLP have found in their valuation report that the shares of the transferor company were of nil value as the said company has negative net worth. Mr. Chidambram submitted that therefore the option of the share swap ratio 11.5:1 in respect of shares of the transferor company vis-a-vis the transferee company given to the shareholders of the Transferor company is unquestionab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ap or exchange is not mandatory, but can be exercised at the option of each of the swap shareholders at any time within three months of the issuance, allotment and listing of the new equity shares on the Stock Exchange in accordance with the process as notified by the Transferor company to the swap shareholders. The Transferee Company shall, as per applicable law, record in the register of its members the transfer of shares pursuant to the aforesaid swap or exchange". On the objections of the minority shareholders (number undefined) whose concerns have been articulated by the Regional Director, it was submitted that the scheme in issue is in fact beneficial specially to minority shareholders of the Transferor Company who could earlier not exit the Transferor company for lack of an exit option for reason of the shares of the Transferor Company not being listed on the Stock Exchange but can now do so opting for the swap of their shares in the transferor company, a listed company, with that of the transferee company in accordance with the approved share swap ratio 11.5:1. Mr. Tripathi, Senior Counsel also appearing for the Transferor Company submitted that the objection of the Regio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rupees equivalent of upto US $300 Million subject to the terms of EOD to be received by the transferor company, is inadequate. The share swap ratio for the swap of equity shares of Transferor company for transferee company shares could not be mathematically determined since the equity value of shares of the transferor company was estimated to be nil. The receipt of Indian Rupees equivalent of US $300 Million has been considered by the valuer while arriving at the equity share value of transferor company. It was submitted that in fact there was no obligation on the transferor company to offer a share swap to its existing shareholders following the transfer of its telecom business for consideration agreed, yet the Board of Directors of the transferor company has negotiated and provided shareholders of the Transferor Company an exit option under the scheme. The minority shareholders of the transferor company, long seeking to exit it, if now desirous, can convert their shareholding in the transferor company to that of the transferee company a listed company on BSE/ NSE on the share exchange ratio of 11.5:1. Mr. Tripathi further submitted that bonafides of transferor company are also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amounts in terms of EOD, they would be dealt with and treated by the transferor company in its accounts in accordance with law as clause 11 of the scheme itself categorically records and the said amount would be open to examination and scrutiny by the MCA and the Income Tax Authorities. It was submitted that there is thus no failure to disclose any relevant fact as required under the proviso to Section 391(2) of the Act of 1956. All statutorily mandated documents have been placed on record with the notices for the court convened meetings before the Regional Director, the ROC and the court by way of explanatory statement as required both under in accordance with Section 393(1)(a) and the proviso to Section 391(2) of the Act of 1956. With regard to the objection of the Regional Director to the sanction of the scheme for reason of the proposed accounting treatment of the Indian Rupees equivalent of upto US $300 Million under the EOD, it was pointed out that clause 11.1.3 of the scheme clearly states that the amounts received under the EOD shall be credited to the general reserve as required by law in force. Accordingly the amounts received by the Transferor company will be subject t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allot any shares in the company, with a view to all or any of those shares being offered for sale to the public, any document by which the offer is made, shall, for all purposes, be deemed to be a prospectus issued by the company. It was submitted that assuming, without admitting, that under the provisions of Section 67(3) of the Act of 1956 the Transferor company would have been required to issue a prospectus, for allotment of rights shares to its members the transferor company in fact did issue a letter of offer to its shareholders qua the issue of rights shares which was a deemed prospectus in terms of Section 64 of the Act of 1956, since the provisions of Section 56 were not applicable to the rights issue. It was submitted that in this view of the matter there is no violation of any provision of the Act of 1956 as alleged by the Regional Director. Without prejudice to the above contention, it was submitted that in the event of a violation of a provision of the Act of 1956, the Regional Director could have inovked and still can, law permitting, proceed thereunder against the Transferor Company and its directors subject to their all possible defences thereagainst. Yet this cannot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arrangement under the scheme between the Transferor and Transferee company which in fact necessitates it. The Madras High Court in the case of Equitas Finance Limited [Company Petition No.119/2016] decided on 6-6-2016 has held that where, in the nature of arrangement encapsulated in the scheme approved by the statutory majority of equity shareholders and creditors of the company, it is not feasible to provide for a fixed appointed date, but equate it with the effective date itself dependent on requisite regulatory approvals mandated in law for the business of the post sanction entity, the company court can sanction such an arrangement in the scheme. In the aforesaid case before the Madras High court, the factual background was that the commencement of the Small Finances Bank (SFB) business of the merged entity, following the sanction of the scheme, was dependent on regulatory clearances for the requisite banking licence being issued by the Reserve Bank of India. A similar situation obtains in the present scheme under consideration, where the telecom business of the Transferor company would be only transferred and vested in the Transferee company as an ongoing concern subsequent to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 156 Million. No specific objection thereto was laid in the two affidavits in opposition filed by the Regional Director, North Western Region, on 17-5-2016 and 14-7-2016. The bald objection without any specifics has however been agitated in written submissions, apparently as an afterthought. The value of the telecom business has not been put to question by the Regional Director. It was not so by the Shareholders and unsecured creditors at the court convened meetings. The valuation report on which the consideration for the transfer of the telecom business has been arrived at has been approved by 99.88 % shareholders and 99.618% unsecured creditors at the court convened meetings. There is thus no force in the aforesaid objection. It is rejected. As far as the objection to sanction of the scheme for reason it having expired by afflux of time under clause 19.2 thereto, (on 30- 6-2016), I am of the considered view that the objection is vacuous, overlooking the clear language of the clause 19.2 itself, whereunder the scheme is not closed ended as of 30-6-2016 but it is to remain effective even subsequent thereto in the event of it so being agreed between the Transferor and Transferee com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce for the consideration of sanction of the scheme by this Court. For one, the transferor company would continue in its corporate existence in the event of sanction of the scheme and if a purported violation of statute obtains against it open to action by the statutory authority, the said authority is always free to take legally permissible proceeding against it. It is however evident that no such proceeding has yet been taken against the Transferor company for the last five years. Sadly, the objection of the Regional Director and the ROC in the historical background of past litigation between the Transferor Company and its minority shareholders and the context of its timing appears to be actuated by the prodding of minority shareholders in a last ditch effort to armtwist the Transferor company into offering to the minority shareholders an exit option which they fancying to be "fair" (the two minority shareholders have also filed objections to the sanction of the scheme which would be addressed later in this judgment). It has been stated as a fact by Mr. P. Chidambram without being contradicted, that the rights issue of Transferor company was pursuant to letter of offer dated 3-2-2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... court and the Regional Director despite application No.16978/2016 therefor, it would be appropriate to first reproduce the proviso to Section 391(2) of the Act of 1956 on which the argument is fundamental premises and also Section 393(1)(a) of the Act of 1956 to which an attempt was also made to relate. The two sections reads as under:- SECTION 391(2)-PROVISO "Provided that no order sanctioning any compromise or arrangement shall be made by the Tribunal unless the Tribunal is satisfied that the company or any other person by whom an application has been made under sub-section (1) has disclosed to the Tribunal by affidavit or otherwise, all material facts relating to the company, such as the latest financial position of the company, the latest auditor's report on the accounts of the company, the pendency of any investigation proceedings in relation to the company under sections 235 to 251 and the like." SECTION 393(1)(a):- Information as to compromises or arrangements with creditors and members-(1) where a meeting of creditors or any class of creditors, or of members or any class of members, is called under section 391- (a) with every notice calling the meeting which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce of any investigations actual, incipient or even possible in regard thereto existing. Any other interpretation of the proviso to Section 391(2) of the Act of 1956 making the objection to disclose "material facts" of the affairs of the company open ended and without limits including that of confidential nature relating to the company's commercial operations and manner of doing business, would make both the illustrations and the words immediately following "and the like" redundant. That would be against the well settled principle of interpretation of statutes. In the case of Royal Hatcheries (P) Limited Vs. State of A.P. [(1994) Supp. (1) SCC 429] the Apex Court has construed the words "livestock, that is to say all domestic animals such oxen, buffaloes, goats, sheeps, horses etc." in clause (xvi) of the Rule 5(2) of the Andhrapradesh General Sales Tax Rules. It was held equating words "that is to say" to "such as" that such words were meant to be illustrative and not exhaustive, yet when followed by the letters "etc." they could not be construed to be open ended but limiting and in the context of rule 5(2)(xvi) of the Andhrapradesh General Tax Rules confined to domestic anima ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as also for the potential of all manner of objections otherwise being maintainable to oppose sanction of scheme of arrangement etc. commercial decisions approved by the statutory majority of stake holders in the company at the court convened meetings. I am of the considered view that the prohibition on the sanctioning of the scheme of arrangement, etc. by the court would arise only in the event of the latest financial position of the company, latest auditor's report on the accounts of the company, the pendency of any investigation proceedings in relation to the company under sections 235 to 251 "and the like" relating to the affairs of the company in its essential statutory compliances having a bearing on situations illustratively set out in the proviso to 391(2) of the Act of 1956 not being disclosed to the court. Non disclosure of other facts regarding the affairs of the company particularly commercial matters with multiplicity of parties unrelated to the scheme and confidentiality issues cannot entail the rejection of the scheme. The question that remains is whether in the instant case the Transferor company is in contravention of its obligation to disclose the material fac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vate law field of contractual law. The EOD is in the nature of a contingent contract detailing the obligations of the parties thereto and manner/ method/ time of discharge of such obligations and contingent payment thereon post the actual transfer of telecom business of Transferor company to Transferee company. The said agreements are stated to include commercial aspects relating to the intricacies of the manner of doing telecom business by the Transferor company and the Transferee company post the vesting and transfer of the telecom business visualised under the scheme. Aside of the aforesaid, there is substance in the submission of Mr. P. Chidambram that the Transferor company has not filed the petition for sanction of the EOD/ Merger agreement. Further in any event there is nothing on record to even remotely establish that there was any serious effort at the instance of the Regional Director or any other objector to impugn the valuation of the telecom business of the Transferor company to be transferred and vested in the Transferee company at Rs. 21,156 Million. Nor was it questioned at any stage by any shareholder as to its inadequacy or with respect to the share exchange ratio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... OD would be subject to the provisions of the Income Tax Act then obtaining and the Company would be liable to pay due tax determined/ assessed by the Income Tax Authorities in accordance with law on the aforesaid amounts received. Further on the alleged evasion of tax by the Transferor Company in treating the amount to be received under the EOD as a part of "general reserve" and not in the profit and loss account of the transferor company, what is noticeable is that the objection has been taken by the Regional Director despite the Circular No.1/2014 dated 15-1-2014 issued by the Central Government, where it has been provided that while responding, to the notice on the second motion under sections 391 to 394 of the Act of 1956 for sanction of the scheme, on behalf of the Central Government, the Regional Director concerned shall invite specific comments from the Income Tax Department before filing his response to the court and in the event of no response emanating from the Income Tax Department it may be presumed that the Income Tax Department has no objection to the sanction of the scheme proposed under sections 391 to 394 of the Act of 1956. The Circular aforesaid records that it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clause/ provision of the scheme sanctioned by the court could affect the income tax liabilities of the company on any income generated from the transaction under the scheme sanctioned by the court. It was held that the jurisdiction of all statutory authorities remains operable in respect of transaction under a sanctioned scheme. For clarification in the facts of the case at hand I would thus direct that in respect of all consideration including under the EOD or otherwise in the hands of the transferor company against the transfer of telecom business to the transferee company, the Income tax department shall be free to exercise its jurisdiction at all times in respect thereto to access income, and levy tax as applicable, subject to all just defences of the Transferor company. And it goes without saying that upon sanction of the scheme in issue the Transferor company should file its accounts for the financial year 2016-17, and they would be open for inquiry and investigation as warranted in law by the income tax authorities under the Income Tax Act, 1961. Consequently, I am of the view that the objection in issue raised by the Regional Director is liable to be rejected with the cave ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ents a wholly differentiated fact situation. Repetition thereof would be, a merely duplication as the circumstances and factual background of the scheme has been detailed earlier in the judgment. In the instant case the only ground for the allegation of the scheme under consideration being an exercise in tax evasion was based on the treatment proposed in the scheme to monies received in Indian Rupee Equivalent of upto US $ 300 Million under the EOD being provided for being lodged in the general reserve fund of the company and not the profit and loss account. The ground agitated on the basis of clause 11.1.2 overlooks the later part thereof which provides that the "the treatment will be given as per the applicable law in force on the Effective Date of the Scheme". That would indisputably include the Income Tax Laws. Further this order has made the monies to the extent received under the EOD subject to the Income Tax Laws, as has also been stated by Mr. P. Chidambram, Senior Counsel appearing for the Transferor Company. No other aspect of the scheme were focused upon in support of the argument of the scheme being a mechanism for tax avoidance. Hence the reliance on the case of Uma En ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arrangement inter alia between the transferor company and one Shyam Telecom company was sanctioned with a provision relating to the listing of the shares of the transferor company. The condition was not in mandatory form nor it could be as listing of shares is subject to regulatory provisions and fulfillment of preconditions set by SEBI. And despite the best efforts of the Transferor company it could not be done. In the circumstances, SB Company Application No.45/2012 in Company Petition No.23/2005 was filed seeking directions from the court with regard to providing an exit option as sought for the minority shareholders or taking requisite steps for listing of shares of the transferor company on the Stock Exchanges. The said application was dismissed vide order dated 9-1-2015 which in appeal was affirmed by the Division Bench of this Court in DB Special Appeal (civil) No.9/2015 vide order dated 7-8-2015. The entire dispute relating to the listing of shares of the transferor company and for otherwise giving an exit option to minority shareholders at the price of their choosing stood concluded and the same cannot be resuscitated in the present petition by a sleight of hand. It was su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bjections of M/s. Jindal Securities Limited would to be dismissed by the court for suppression of facts. From the submission made it thus appears that the objections of these two companies Jindal Securities Private Limited and Aman Finvest Private Limited are not bonafide but only searching and seeking to arm twist the transferor company after having failed in the earlier round of litigation on the same issue as agitated herein by the minority shareholders ending with the judgment of the Division Bench of this Court on 7-8-2015 in DB Special Appeal (civil) No.9/2015. I am of the considered view that the purported right of the minority shareholders to be offered an exit option at a price of their choice de hors the current value of their equity holding in the trasferor company is misdirected, and deserves rejection. The objections under consideration are thus rejected. Objections have also been filed by one Srinivasraghavan Seshadri an ex-employee of the transferor company through his Power of Attorney Debranjan Bhattacharya. Appearing on his behalf Mr. Gunjan Pathak asserted that the scheme in issue requires to be modified to record the interest of and provide for the debt of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the company in proportion to the debt of such creditor and where the requisite majority of 75% creditors supporting the scheme of which sanction is sought not be jeopardised on the equation. In Re Shyam telecom Limited [(2007)135 Company Cases 387] this court has held that it is well settled that an objector must prove before the court that the debt due to him was admitted by the company, the court prima facie comes to a conclusion that debt due would be adversely affected by the sanction of the scheme or that scheme is unjust to the creditor objecting to the scheme. It was held in the aforesaid judgment, relying on the judgment of Bombay High Court in the case of Mayfair Limited, in re and Zodiac clothing Co. Ltd. [(2004)122 Company Cases 748] that objections in a petition for sanction of scheme under Sections 391 to 394 of the Act of 1956 cannot be used as a tool in the hands of creditor to recover the debt disputed by the company or coerce it into paying the said amount. It was further submitted by Mr. Tripathi that even with the scheme being sanctioned, the Transferor company with substantial "remaining businesses" retains its corporate existence and the applicant would be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar complaint has been made to the Ministry of Home Affairs, Internal Security Division-I under letter dated 24-8-2015 and 23- 2-2016. It was submitted that in the context of the false declaration qua clause 8 of the scheme of arrangement and complaints against the transferor company, the scheme not be sanctioned but be rejected. Replying to the objections aforesaid, Mr. Parag Tripathi, submitted that the application is wholly misconceived, based on a blatant and mischievous, reading of clause 8.1 of the scheme with the sole object of seeking to misuse the forum of this court to cause harassment to the transferor company and thereby arm twist it into satisfying the applicant objector in monetary terms through payment of amounts not at all legally due and recoverable. It was submitted that clause 8.1 of the scheme in respect of which mis declaration is alleged only adverts to legal proceedings with regard to "transferred undertaking" as defined in the scheme. The said clause does not provide for disclosure of any legal proceeding against the transferor company with reference to which the entire objection has been premised. Clause 8.1 of the scheme does not state in any manner or for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... creditor" is defined by the Black's Law Dictionary (Fifth Edition) as one to whom a debt is owing by another and albeit the word "creditor" is susceptible of a latitudinous construction and in its broad sense may include one claiming money due on contract or under tort, in its narrower sense the word "creditor" would relate to one who holds a demand which is certain and liquidated. In the context of Sections 391 of the Act of 1956, I am inclined to ascribe to the restricted meaning to the word creditor and exclude therefrom claims disputed, unadjudicated and uncertain or unliquidated. Such a construction of the word "creditor" in Section 391 of the Act of 1956 is necessary to advance the object of Sections 391 to 394 to promote business through restructuring and arrangements dictated by dynamic market forces. Besides the claim of the objector Manisha Tele Sanchar Limited in its counter claim, filed as a counter blast to the Transferor company's suit for injunction etc., is for damages of Rs. 25 lacs. No matter how speculatively enormous the final decree thereon could be, as was submitted, the Transferor company in its post scheme sanction avtar will be able to discharge its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate jurisdiction over a scheme, and its jurisdiction is limited to ascertaining fairness, justness and reasonableness of the scheme and to ensuring that neither any law has been violated or public interest compromised in the process. It was held that where a majority of shareholders (in the aforesaid case 99.64% as against 99.88% in the present case) approved the valuation in respect of the transaction under the scheme as best judges of their interest fully conversant with market trends, their judgment should not be interfered with by the court for the reason that it is not a part of judicial function to examine entrepreneurial activities and ferret out flaws. It is well settled that the court evaluating the scheme, of which sanction is sought under sections 391 to 394 of the Act of 1956 will not ordinarily interfere with the corporate decision of a company approved by its shareholders and creditors in court convened meetings unless it can be shown that the scheme is not fair, just and reasonable or that it is in contravention of statutory provisions and/ or public interest. From the facts on record it is evident that the scheme of transfer of which sanction is sought entails tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the Tranferor Company--a listed one--opens an exit to the minority shareholder of the Transferor Company who have been seeking an exit for about a decade. There is also no allegation of the inadequacy of consideration for the transfer of the telecom assets of the transferor company constituted of each of Rs. 5/- face value being Rs. 27.65 crores shares and Indian Rupees equivalent of upto US $300 Million under the EOD subject to its terms. The payment of Indian Rupees equivalent of upto US $300 Million under the EOD is subject to approval of DoT for contiguity and combined use of spectrum and these facts have been set put in report dated 30-10-2015 prepared by SR Batliboi & Co. LLP. It is evident from the scheme in issue that both EOD and the Merger agreement have been referred in the scheme itself. The first being between three parties and the second being between eleven parties, to provide for the overall frame work for transfer of business undertaking of the transferor company to the transferee company. The multiparty documents are confidential recording the rights and obligations of others alongwith the Transferor and Transferee companies. As such the transferor company i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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