9911796707
TMI Blog2007 (3) TMI 803X X X X Extracts X X X X X X X X Extracts X X X X ..... Petitioner Company do within 30 days from the date of sealing of the order cause a certified copy of the order sanctioning the Scheme of Arrangement to be filed with the Registrar of Companies, Gujarat, Ahmedabad for registration and upon such certified copy of the order being so delivered, the Registrar of Companies, Gujarat, Ahmedabad be directed to consolidate all relevant files, documents, records relating to the De-merged Company maintained by him with the files, documents, records of the Resulting Company. (c) For such incidental, consequential and supplemental orders and directions may be given as may be made in the premises as to this Hon'ble Court may deem fit and proper; (d) Costs of this petition and the order to be made thereon be provided for. 2.1. According to the petitioner-Company, the object of the petition is to obtain sanction of the Court to the composite Scheme of Arrangement in the nature of compromise with the lenders and reconstruction of Core Healthcare Limited, the petitioner demerged Company, reorganisation of capital of Nirma Limited, and demerger and transfer of undertaking (as defined in the Scheme) of Core Healthcare Limited to Nirma Limited ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts Limited, were amalgamated with Nirma Limited. Under order dated 13th August, 2003 passed by this Court, the operating division of Nirma Industries Limited was demerged and transferred to Nirma Limited. 2.6 As per the latest audited balance sheet as on 31st March, 2005, the authorised, issued, subscribed and paid-up share capital of Nirma consist of the following: Share Capital as on 31.03.2005 Authorised: 9,50,00,000 Equity Shares of ₹ 10/- each ₹ 95,00,00,000 5,00,000 6% Redeemable non-cumulative Non-convertible Preference Shares of ₹ 100/- each ₹ 5,00,00,000 Total.... ₹ 1,00,00,00,000 Issued and Subscribed: 7,94,01, 376 Equity Shares of ₹ 10/- each Fully Paid-up ₹ 79,40,13,760 2,79,285 6% Redeemable non-cumulative Non-convertible Preference Shares of ₹ 100/- each ₹ 2,79,28,500 Total.... ₹ 82,19,42,260 Paid-up: 7,93,82,484 Equity Shares of ₹ 10/- each Fully Paid-up ₹ 79,38,24,840 2,79,285 6% Redeemable non-cumulative Non-convertible Preference Shares of Rs.100/- each ₹ 2,79,28,500 Add Amount received on forfeiture of equity shares ₹ 2,000 Total.... S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enders and also appraised by all lenders while sanctioning the loans. Based on the same, the company set up one of the world's most modern and largest pharmaceutical manufacturing facility across 600 acres of land with most modern manufacturing technology from world-renowned suppliers. The company continued to achieve appreciable growth in sales and financial performance despite significant increase in costs, overheads and fixed charges upto 1996. The company's new manufacturing facility for I.V. Fluids won the prestigious IDMA award for 1994-95 in its very first year of operations the highest recognition for quality assurance in Indian Pharmaceutical Industry. The facility at Sachana also received ISO 9002 approval and also was certified for GMP as per World Health Organisation (WHO) standard. The medical devices products of the company were awarded 'CE Mark'. Such quality recognitions of the new plant at Sachana reinforced the commitment of the management towards delivering international quality products. 2.10 According to the petitioner-Core, during the year 1996-97, the company experienced unprecedented cash flow mismatches adversely reflecting its ability to f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, linear alkyl benzene and soda ash, etc. having a turn over of approx. ₹ 2,150 crores during the financial year ended on 31st March, 2005. The operating profit for the year was ₹ 510 crores. The company has reserves and surplus of more than ₹ 1,792 crores. The shares of the company are listed on Mumbai Stock Exchange and National Stock Exchange. 'NIRMA' today is one of the largest selling detergent brand with a sustained growth in the Indian market. The company has also penetrated and developed toilet soap segment as well as premium segment and successfully acquired substantial market share. It has established integrated soaps and detergent plants, employing the state-of-the-art technology located at Mandali, Chhatral, Moraiya, Trikampura, Kalatalav and Alindra in the State of Gujarat. The logistic advantage with the geographical dispersal of the manufacturing bases has enabled it to respond to the emerging and hitherto untapped market needs with more pro-active, dynamic and near-to-the-customer approach, resulting into savings in cost and time, both. The company holds the highest volume share of 38% in the detergent market, mainly dominated by two playe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as debit balance of profit and loss account. Similarly, as a consequence to the proposed compromise, the value of the liabilities of the company also undergoes a substantial change. The net effects of the above are to be reflected in the reconstruction account. In order to realise the realistic financial position of the company, it is proposed that an amount not exceeding ₹ 5.66 crores standing in the Share Premium Account of the company be utilised to adjust/write off the balance of the said reconstruction account. Under Clause 46 of the Articles at Table 'A', which is Schedule I to the Act, and which have been adopted by the applicant generally as its Articles of Association, subject to the provisions of Sections 78 and 100 of the Act, the petitioner-Company is authorised to use its Share Premium Account for the said purpose. 2.16 Accordingly, the Board of Directors of the petitioner-Core resolved in their meeting held on 25th October, 2005 that subject to the approvals of the shareholders and lenders and subject to directions and sanctions of the appropriate Courts, as may be required under the law, and/or any other regulatory authorities, as may be prescribed und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pite objects raised by M/s. HDFC, one of the lenders, the Court allowed the application and directed as under: (a) That separate meetings of the equity shareholders, Class A lenders and Class B lenders (of the demerged undertaking, as defined in the scheme) of the applicant company be convened and held at the registered office of the company at village Sachana, Taluka Viramgam, Dist. Ahmedabad on Friday, 9th day of December, 25 at 9.30 a.m, 10.30 am and 11.30 am respectively, for the purpose of considering, and if thought fit, approving with or without modifications, the composite Scheme of Arrangement in the nature of compromise with the lenders and reconstruction of Core Healthcare Limited, the applicant demerged company, Reorganisation of capital of Nirma Limited, the Resulting Company and demerger and transfer of undertaking (as defined in the scheme) of Core Healthcare Limited, the applicant company to Nirma Limited, the resulting Company and its shareholders. (b) That at least 21 days before the meetings be held as aforesaid, notice convening the said meetings, indicating the day, the date, the place and the time as aforesaid, together with the copy of the scheme of Agree ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he value of the vote of each equity and preference shareholder of the company shall be as per the entries in the Registers and/or books of accounts of the company and where the entries in the records or registers are disputed, the Chairman of the meetings shall determine the value or number for the purposes of the meetings and his decision in that behalf would be final. (i) The Chairman do report to this Court, the result of the said meetings within 14 days of the conclusion of the meetings and the said report shall be verified by his affidavit. The Court also observed that in view of the special circumstances and the facts of the case, the requirements, to meet the provisions of Section 101(2) of the Act with the procedure, as is required under Rules 48 to 65 of the Companies (Court) Rules, 1954, could be conveniently dispensed with. 3. Company Petition No. 9 of 2006 has been filed by Nirma. The objects of the petition is to obtain sanction of the Court to the composite Scheme of Arrangement in the nature of compromise with the lenders and reconstruction of Core the demerged Company, reorganisation of capital of Nirma Limited, the petitioner-Company, demerger and transfer of u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shareholders. (b) That at least 21 days before the meetings be held as aforesaid, notice convening the said meetings, indicating the day, the date, the place and the time as aforesaid, together with the copy of the scheme of Agreement, copy of the explanatory statement required to be sent under Section 393 of the Companies Act, 1956 and the prescribed Form of Proxy shall be sent by a pre-paid letter posted under Certificate of Posting, addressed to each of the equity and preference shareholders of the applicant Company at their last known address. (c) That at least 21 clear days before the meetings to be held as aforesaid, notice, convening the said meetings, indicating the day, the date, the place and the time as aforesaid be published, stating that copies of the scheme of Agreement, the explanatory statement required to be furnished pursuant to Section 393 of the Companies Act, 1956 and Form of Proxy can be obtained free of charge at the Registered Office of the applicant Company and/or at its Advocate's office i.e. 204, Akanksha, opposite Vadilal House, Mithakhali, Navrangpura, Ahmedabad 380 009, be published once each in the Times of India (Ahmedabad edition) and Gujar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e duly convened on 9th December, 2005. In accordance with the orders passed by the Court, Shri Chinubhai R. Shah chaired the meeting. Shri Chinubhai R. Shah reported the results of the meeting to this Court which are as under: (a)(i) The said meeting of the equity shareholders of the company was attended by 29 (Twenty Nine) equity shareholders of the said company entitled to together ₹ 16,36,12,800/- being 163,61,280 Equity Shares of ₹ 10/- each. The said Scheme of Arrangement was taken as read with the permission of all the equity shareholders present at the meeting. The detailed discussions and deliberations were made on the proposed scheme. The modifications in the scheme as proposed and approved by the equity shareholders of Nirma at the meeting convened on 29th November, 2005, for the approval of the scheme, were also put before the equity shareholders of Core and the same were explained and discussed at the meeting. Inserting the said modifications, the duly modified scheme was then put for consideration. Separate vote was taken on for both, the approval of the modifications proposed and approval of the modified Scheme of Arrangement submitted to the meeting and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss 'A' Lenders Nos. % of total present and voting Value of Debt (Rs. in lacs) % of total holding present and voting In favour 7 70 111,545.40 90.42 Against 3 30 11,816.45 9.58 Invalid Votes 2 n.a. 3,095.8 n.a. Total Present 12 126,457,65 Total valid voting 10 123,361.85 Out of total 12 ballot papers, two ballot papers representing the value of debt at ₹ 3,095.8 lacs were treated as invalid as the same did not indicate whether the votes were cast in favour or against the proposed modifications. Thus, the proposed modifications were approved by majority of 70% in number and 90.42% in value of the Class 'A' lenders present and voting a the meeting, for being adopted and carried into effect by modifying the proposed scheme. (b)(v) Vote for the approval of the modified scheme showed the following result: Core Healthcare Limited vs. Nirma Limited (01.03.2007 - GUJHC) : Out of 12 lenders present at the meeting, 8(eight) lenders having the total value of their debt at ₹ 112,070.40 lacs voted in favour of the resolution approving the modified scheme and 3 (three) lenders having the total value of their debt at ₹ 11,816.45 la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rate deliberations were made to consider the scheme. The modifications in the scheme as proposed and approved by the equity shareholders of Nirma at the meeting convened on 29th November, 2005 for the approval of the scheme, were also put before the Class 'A' lenders of Core and the same were explained. Inserting the said modifications, the duly modified scheme was then put for consideration. Separate vote was taken on for both, the approval of the modifications proposed and approval of the modified Scheme of Arrangement submitted to the meeting. (c)(iii) Vote for the approval of the modifications showed the following result: Class 'B' Lenders Nos. % of total present and voting Value of Debt (Rs. in lacs) % of total holding present and voting In favour 71 94.67 31542.63 90.61 Against 4 5.33 3267.42 9.39 Invalid Votes --- --- --- --- Total Present 75 34810.05 100 Thus, the proposed modifications were approved by majority of 94.67% in number and 90.61% in value of the Class 'B' lenders present and voting at the meeting, for being adopted and carried into effect by modifying the proposed scheme. (c)(iv) Vote for the approval of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions and 2 votes representing the value of shares at ₹ 3,920/- were found to be invalid as the Folio Number and the name of the shareholder did not match with that of the register of the company. Thus, the modifications were approved by the majority of 97.27% in number and 99.99% in value by the equity shareholders present and voting at the meeting. (c) Since the proposed modifications were approved by the said meeting with requisite statutory majority, the duly modified scheme was then put for consideration and to vote. The poll was taken to ascertain the wishes of the equity shareholders which showed the following result: (i) 108 (One Hundred and Eight) votes were cast representing the value of the shares at ₹ 64,39,06,360/-. Out of the same, 106 (One Hundred and Six) votes of the equity shareholders present, in person or through proxy, in the meeting representing the value of ₹ 64,39,02,440/- were found to be in favour of the proposed resolution. Whereas 2 (two) votes representing the value of shares at ₹ 3,920/- were found to be invalid as the Folio number and the name of the shareholder did not match with that of the register of the company. Thus, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to as the SARFAESI Act for brevity) and ARCIL is working as a trustee of ARCIL-Core Healthcare Trust. According to them, once ARCIL had exercised the powers under the SARFAESI Act, it can never be defined as Class 'B' lender. According to them, as various creditors and Banks have assigned their loans in favour of ARCIL, neither the Banks nor ARCIL can be classified in Class 'A' lenders. Conduction of the meeting was condemned alleging that it was done in violation of the principles of natural justice, no appropriate notices were issued, the scheme is against public interest, 90% of the amount would go to Class 'A' lenders while only 10% would be paid to Class 'B' lenders, which suggests that the amount available for distribution amongst Class 'B' lenders would be negligible. They have submitted that they have already instituted suits against Core and in view of pendency of the suits, the scheme cannot be approved. 6. Another objection was raised by HDFC Bank Limited (hereinafter referred to HDFC for brevity), they have submitted that they are secured creditors of Core and have to recover a sum of ₹ 28,70,72,244/-. According to them, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pointed as an operating agency and IDBI, in its turn, appointed M/s. Ernst & Young, a firm of Chartered Accountants, as a special investigative audit to conduct audit of Core. M/s. Ernst & Young, vide its Special Investigative Audit Report, made several observations with respect to the working of the company. According to the objector, the said report revealed various acts of malfeasance and misfeasance by the Directors of Core. It was observed by M/s.Ernst & Young that the company failed to show its books of accounts and other materials on certain occasions and M/s. Ernst & Young were left with no other alternative but to arrive at inferential conclusions. Various parts of the said reports have also been referred to in the objections. According to the objector, Core formulated an artificial definition under the Scheme of the secured creditors, which included only those who have security over the fixed assets of the company and they were classified as Class 'A' lenders. According to the objector, HDFC, which has security of raw materials, stocks, book debts and receivables, could not be put under the definition of Class 'B' lenders. Their further objection is that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompromising the Bank's position with the Custom Authorities without giving true and proper disclosures to the Court and in effect attempting to defraud public monies of the Bank. 6.1 It is also submitted by them that Core has obtained revalidation for compliance of export obligation till 8th October, 2007 and the Government of India, Ministry of Commerce has, by a letter dated 27th December, 2005 addressed to the company with a copy to HDFC, stated, inter alia, that he has no objection to refund the sum of ₹ 987.24 lakhs already forfeited provided a new Bank Guarantee for the same amount is executed by the Bank with the Commissioner of Customs, Mumbai. Their submission is that if the export obligations are performed, the amount of ₹ 987.24 lakhs would be received by Core and the same would amount to unjust enrichment if the said amount is not refunded to HDFC. Their further submission is that if the scheme is approved, the objector would get only 3%, while Core is likely to get back a sum of ₹ 987.24 lakhs by way of refund. Their submission is that this is a dishonest attempt on the part of Core. 6.2 It is also submitted by them that Core had wrongly include ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... na Unit was placed before the Court or before the creditors. According to them, the book value of fixed assets is more than ₹ 699 crores as on 31st March, 2004 and the market value thereof is likely to be much more than the depreciated or book value. They also submitted that Nirma is acquiring Sachana Unit of Core as a going concern and as per Clause (8) of the Scheme, Nirma is claiming set off of the accumulated losses and unabsorbed depreciation. According to the objector, Nirma is likely to claim set off of more than ₹ 1,200 crores and are likely to save more than ₹ 400 crores by way of tax benefits. According to them, grant of the scheme would cause loss to the revenue because the Scheme is a fraud upon the revenue. They also submitted that HDFC had filed Original Application No. 77 of 2005 before the Debts Recovery Tribunal, Ahmedabad, which is pending, and as the said Recovery Act is a special Act, it would have precedence over the provisions of the Act. They submitted that the scheme be rejected. 7. Yet another objection has been filed by Oman International Bank S.A.O.G. submitting, inter alia, that Oman Bank is a secured creditor of the company and in ter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... osed demerger that need can be achieved by the proposer and what incentive is given to the creditors for effecting any sacrifice of their dues. According to the objector, such details if are not supplied, then, the scheme/proposal would come under the shadow of doubt and would not make the proposal a valid proposal. They submitted that the Scheme of Compromise does not disclose the particulars of the secured as well as unsecured creditors and the amount due to each of the said class of creditors. According to them, the petitioner did not give the detailed particulars of lists of Class A" and Class B" creditors, amount due to each of the creditors falling in each of the classes, any agreement or otherwise arrived at with any class of creditors, percentage of sacrifice each of the creditors has to undergo and the criteria adopted for determining the classification. 7.3 Their further objection is that the objector had advanced foreign currency loan to the petitioner-Company, therefore, they cannot be equated with that of other Indian lenders. It is also submitted by them that the scheme of compromise does not disclose the value of assets, no valuation report is shown/indica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... editors to the extent such debts rank under Clause (c) of the proviso to Sub-section (1) of Section 529 pari passu with such dues, shall be paid in priority to all other debts. Sub-section (2) of Section 529A provides that the debts payable under Clause (a) and Clause (b) of Sub-section (1) shall be paid in full, unless the assets are insufficient to meet them, in which case they shall abate in equal proportions. 8.2 Section 530 of the Act provides that in a winding up, subject to the provisions of Section 529A, there shall be paid in priority to all other debts, - (a) all revenues, etc.; (b) all wages or salary of employees; (c) all accrued holiday remuneration, etc. After all such debts are paid, the shareholders would be entitled to receive their share value and thereafter, the balance would be given to the promoters. 8.3 In the present case, undisputedly, the assets of the company is valuing at ₹ 500 crores (as observed by some of the objectors) or ₹ 138 crores as has been offered by Nirma, with the money the entire liability of the workmen and the secured creditors cannot be discharged. If the entire liability cannot be discharged, then, nothing would be availab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erged with Nirma and Nirma is undertaking to clear the statutory liability raised against Sachana Unit. If the Excise Department has to recover an amount of ₹ 1,93,19,641/- against Sachana Unit, and such statutory liability is accepted by Nirma, then, the Excise Department would be entitled to recover the said amount from Nirma. I have already observed while dismissing the objections made by Mr.Modi that in case a company is to be put under liquidation and the entire property of Core, including both the Units, namely, Rajpur and Sachana, are auctioned, then too, money to discharge the liability or pay to the secured creditors would not be made available. If such is the situation, then, the Excise Department even in case of liquidation and sale of the property would not be in a position to recover anything. Would it be prudent for the Excise Department to oppose to the Scheme, which provides payment of a sum of ₹ 1,93,19,641/-, or to go in liquidation of the company and receive nothing. The Excise Department is neither a workman nor a secured creditor. If they are unable to get anything in the liquidation proceedings, then, it would be wise and prudent for them not to ob ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... injunction order operating in favour of the HDFC Bank and the said letter was fully read out at the said meeting and was subject matter of discussion. They submit that when the facts were known to all concerned, then it would not be proper to say that the facts were suppressed. 11. It is also submitted that the objection that some of the creditors wanted audit of Core when the matter was pending before the BIFR would lead to nothing, because present is not a case to find out whether the company is sick or not, present is a case for restructuring a company and Scheme is for compromise and/or arrangement between the petitioner company and its shareholder and lenders. They also submitted that the writing off of some amount by majority is not a question to be considered in these proceedings, because these proceedings are in relation to the Scheme and are not relating to malfeasance or misfeasance. It is submitted that the misconduct on the part of the management and mismanagement of the company concerned would not be relevant consideration, because, this Court is not required to decide that whether company suffered losses because of the mismanagement. 12. They also submitted that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dering the large amount of statutory dues payable by Core, it was decided to propose a Scheme whereby Nirma would discharge all liabilities of lenders at the total price of ₹ 138 crores. According to them, total worth of the security of the Scheme of Class-B lenders on the basis of its market value today is lower than 10% which is coming to their share. They submitted that this matter is purely in the realm of the discussion, negotiations and satisfaction between the respective creditors, inter se and between one and another group and between all of them at one end and Nirma on the other. According to them, the issue has no bearing to the validity of the Scheme. They submit that ARCIL, certainly would be creditor of Core to the extent of ₹ 82,273.64 lacs, because the lenders who had right to recover the amount and had transferred the debt in favour of ARCIL, had to recover the said amount. They submit that question that for what ARCIL had purchased the debt would be immaterial, because, ARCIL had paid some money to all such persons who had lost all their hopes to recover anything from Core. According to them, ARCIL having acquired financial assets from the banks and oth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in discussing the Scheme. It is submitted that the Scheme was approved by statutory majority and out of Class-A lenders, Oman International Bank is the only one lender which objects to the Scheme. It is submitted that in the Scheme of demerger, valuation of assets is immaterial. If any lender had any objections, then the same were to be projected in the meetings. Once statutory majority which includes international banks, financial institutions, foreign banks and private banks, had considered everything, then it would be too much to say that the other institutions which had higher stakes approved the Scheme without understanding it. According to them, in the meeting dated 23.11.05, ARCIL had agreed that sale proceeds from sale of shares will be distributed by it in the same manner and on the same basis as is contained in the case of Sachana unit. According to them, benefit of pledge of shares would be available to the whole body of lenders of Core and ARCIL, and ARCIL is not to make any profit from such sale. It is also submitted that it was open to each class of lenders to oppose the Scheme if it was felt that the Scheme was unfair or against their interest. They submit that it wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... December, 2006 in reply to objections raised by the HDFC. They submit that M/s.ICICI, IFCI, IDBI, SBI, SBM and SBT had assigned debt to the extent of ₹ 37,191.00 lacs in favour of ARCIL, Dena Bank assigned debt of ₹ 5,932.57 lacs in favour of M/s. Niya Finstock Pvt. Ltd., and M/s. Indus Ind Bank assigned debt of ₹ 1,289.56 lacs in favour of Astramed Technologies Limited. Their submission is that purchaser of the debt, specially, ARCIL has acquired financial assets from the banks and financial institutions under Section 5 of the SARFAESI Act and it has become lender. It is further submitted that minority was not forced to accept the settlement in order to promote interest of ARCIL. Core had filed yet another affidavit dated 13/14th December, 2006, wherein, they had submitted that Core did not know that for what amount financial institutions had assigned their debt in favour of ARCIL, but the said institutions had informed the petitioner that the debts were assigned. By further affidavit dated 5th January, 2007, it is submitted by them that the Board of Directors of the company at its meeting held on 27th June, 2006 passed a resolution for extending time up to 31st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in person or, where proxies are allowed [under the rules made under Section 643], by proxy, at the meeting, agree to any compromise or arrangement, the compromise or arrangement shall, if sanctioned by the Tribunal, be binding on all the creditors, all the creditors of the class, all the members, or all the members of the class, as the case may be, and also on the company, or in the case of a company which is being wound up, on the liquidator and the contributories of the company: 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 auditors 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. [3] An order made by the Tribunal under Sub-section [2] shall have no effect until a certified copy of the order has been filed with the Registrar: [4] A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terms of the compromise or arrangement and explaining its effect, and in particular, stating any material interests of the directors, managing director or manager of the company, whether in their capacity as such or as members or creditors of the company or otherwise, and the effect on those interests, of the compromise or arrangement, if and in so far as, it is different from the effect on the like interests of other persons; and [b] in every notice calling the meeting which is given by advertisement, there shall be included either such a statement as aforesaid or a notification of the place at which and the manner in which creditors or members entitled to attend the meeting may obtain copies of such statement as aforesaid. [2] Where the compromise or arrangement affects the rights of debenture holders of the company, the said statement shall give the like information and explanation as respects the trustees of any deed for securing the issue of the debentures as it is required to give as respects the companys directors. [3] Where a notice given by advertisement includes a notification that copies of a statement setting forth the terms of the compromise or arrangement propo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the undertaking, property or liabilities of any transferor company; [ii] the allotment of appropriation by the transferee company of any shares, debentures, policies, or other like interests in that company which, under the compromise or arrangement, are to be allotted or appropriated by that company to or for any person; [iii] the continuation by or against the transferee company of any legal proceedings pending by or against any transferor company; [iv] the dissolution, without winding up, of any transferor company; [v] the provision to be made for any persons who, within such time and in such manner as the Tribunal directs, dissent from the compromise or arrangement; and [vi] such incidental, consequential and supplemental matters as are necessary to secure that the reconstruction or amalgamation shall be fully and effectively carried out: Provided that no compromise or arrangement proposed for the purposes of, or in connection with, a scheme for the amalgamation of a company which is being wound up, with any other company or companies, shall be sanctioned by the Tribunal unless the Tribunal has received a report from the Registrar that the affairs of the company have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nnon Dunkerly to support their objections, therefore, the same are rejected. 19. HDFC Bank says that creditors of Core have not been properly classified, Core had clubbed secured creditors other than Class 'A' lenders, unsecured creditors and debenture holders in the category of Class 'B' lenders. The said creditors have different interests and are not homogeneous. Class-B lenders include assignees of the debt being ARCIL, Niya Finstock Pvt. Ltd. and Astramed Technologies Ltd. representing ₹ 3,676.63 lacs, ₹ 10,385.00 lacs and ₹ 5,371.60 lacs of value of debts of Class 'B' lenders. Since the debts had been purchased at a fraction of the value by the assignees, the compromise offered under the Scheme to the Class 'B' lenders [3.8% of the outstanding amount as on the cut off date] is effectively and in substance different, for the original lenders would have to sacrifice 96.2% of their claim. According to them, assignees being the majority would ride rough shod over the original lenders-minority representing a distinct interest, despite which they have been clubbed together. Explanatory statement issued by Core does not disclose nece ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etition No. 48 of 1999 filed by Jost's Engineering Company Limited has been filed for winding up of the company and the same has already been admitted for hearing. They submit that under the circumstances, the Scheme be rejected. 20. Oman International Bank has also summarized their arguments and has submitted written arguments after completion of the oral hearing. They submit that the Scheme is neither legal nor fair and reasonable. Before the Scheme came to be proposed, notices were served and possession of the secured assets was taken by ARCIL under the SARFAESI Act and the said Act has to prevail over the provisions of the Companies Act. Once the possession has been taken under the SARFAESI Act and such action has not been challenged by Core, assets are required to be disposed of in accordance with the provisions of the SARFAESI Act and sale proceeds are required to be distributed as per the provisions of the SARFAESI Act. According to the objections, the SARFAESI Act does not contemplate disposal of assets in the form of scheme of compromise and/or arrangement. According to them, the SARFAESI Act proceeds for liquidating assets to realize debts of secured creditors which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ector knew about the report, then too, the question that whether proper informations were supplied or not would be a material question. They submit that there was no offer on the part of the company to get the report produced and concept of adverse inference in case of statutory requirement has no room. They submit that ARCIL cannot be considered in the category of secured creditors, because it never lent money to the company but in fact, it had purchased debts and the assignment is secured at a price much less than the amount of debts. Under the circumstances, consideration for sanctioning the Scheme of compromise for ARCIL would be different. It is also submitted by them that the Company Court has no jurisdiction to pass an order taking away effect of O.A. [DRT proceedings] and the reliefs claimed thereunder. They are placing their reliance upon the judgment of the Supreme Court in the matter of Allahabad Bank v. Canara Bank, . They also rely upon a judgment in the matter of Fidelity Investment International PLC v. My Travel Group PLC reported in [2006] 1 Comp.LT 152 [CA]. They also submit that the petitioner has approached this Court with tainted hands by suppressing and without ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted was as under: Class A Lenders Nos. % of total present and voting Value of Debt(Rs.in lacs) % of total holding present and voting In Favour 7 70 111,545.40 90.42 Asset Reconstruction Company (India) Ltd. 1 82,270.64 Dresdner Bank AG 1 13,892.19 GE Capital through Alpa One Revitalization Vehicle 1 3,605.98 HSBC 1 4,064.19 Standard Chartered 1 2,570.80 Burgan Bank 1 3,213.50 State Bank of India 1 1,928.10 Against 3 30 11.816.45 9.58 Dena Bank 1 3,833.11 Oman International Bank 1 2,570.80 LIC 1 5,412.54 Invalid votes 2 N.A. 3,095.80 Total votes 12 126,457.65 Total valid voting 10 123,361.85 (v) Outcome of the meeting of Class-B lenders of Core Healthcare Limited was as under: Class B Lenders Nos. % of total present and voting Value of Debt(Rs.in lacs) % of total holding present and voting In Favour 71 94.67 31,542.63 90.61 State Bank of Mysore. 1 278.3400 Bank of Baroda 1 5,833.0000 Niya Finstock Pvt.Ltd. 1 10,385.0000 Astramed Technologies Ltd. 1 5,371,6000 Chandrapur Ghadchiroli Gramin Bank 1 69.5800 Rajgarh Sehore Kshetriya Gramin Bank 1 69.5800 Baitrani Grami ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the commercial wisdom exercised by the creditors and members of the company who have ratified the scheme by the requisite majority. Consequently, the company court's jurisdiction to that extent is peripheral and supervisory and not appellate. The court acts like an umpire in a game of cricket who has to see that both the teams play their game according to the rules and do not overstep the limits. But subject to that how best the game is to be played is left to the players and not to the umpire. The supervisory jurisdiction of the company court can also be culled out from the provisions of Section 392 of the Act which reads as under: 392. [1] Where a High Court makes an order under Section 391 sanctioning a compromise or an arrangement in respect of a company, it- [a] shall have power to supervise the carrying out of the compromise or arrangement; and [b] may, at the time of making such order or at any time thereafter, give such directions in regard to any matter or make such modifications in the compromise or arrangement as it may consider necessary for the proper working of the compromise or arrangement. [2] If the court aforesaid is satisfied that a compromise or a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... who attended the meeting and that the statutory majority are acting bona fide and are not coercing the minority in order to promote interests adverse to those of the class whom they purport to represent, and thirdly, that the arrangement is such as an intelligent and honest man, a member of the class concerned and acting in respect of his interest, night reasonably approve. The court does not sit merely to see that the majority are acting bona fide and thereupon to register the decision of the meeting, but at the same time, the court will be slow to differ from the meeting, unless either the class has not been properly consulted, or the meeting has not considered the matter with a view to the interest of the class which it is empowered to bind, or some blot is found in the scheme. In the case of Alabama, New Orleans, Texas and Pacific Junction Railway Co., In re [1891] 1 Ch 213, the relevant observations regarding the power and jurisdiction of the company court which is called upon to sanction a scheme of arrangement or compromise between the company and its creditors or shareholders were made by Lindley L.J., as under [at pp.238-239]: What the court has to do is to see, firs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der to promote interests adverse to those of the class whom they purpose to represent; and, thirdly, that the arrangement is such as a man of business would reasonably approve. The learned single Judge of the Calcutta High Court in the case of Maknam Investments Ltd., In re [1995] 4 Comp LJ 330 [Cal] : [1996] 87 Comp Cas 689 relying on a catena of decisions of the English courts and Indian High Courts observed as under on the power and jurisdiction of the company court which is called upon to sanction a scheme of merger and amalgamation of companies [at page 695]: It is a matter for the shareholders to consider commercially whether amalgamation or merger is beneficial or not. The court is really not concerned with the commercial decision of the shareholders until and unless the court feels that the proposed merger is manifestly unfair or is being proposed unfairly and/or to defraud the other shareholders. Whether the merged companies will be ultimately benefited or will be able to economise in the matter of expenses is a matter for the shareholders to reconsider. If three companies are amalgamated, certainly, there will be some economies in the matter of maintaining accounts, f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e provisions of the Act have been complied with or the class or classes were fully represented and the arrangement was such as a man of business would reasonably approve between two private companies may be correct and may normally be adhered to but when the merger is with a subsidiary of a foreign company then economic interest of the country may have to be given precedence. The jurisdiction of the court in this regard is comprehensive. Sen J., speaking for himself and Venkatachaliah C.J., also toed the line indicated by Sahai J., about the jurisdiction of the company court while sanctioning the scheme and made the following pertinent observations in paragraph 84 at page 528 of the report [at p. 65 of 83 Comp Cas]: An argument was also made that as a result of the amalgamation, a large share of the market will be captured by HLL. But there is nothing unlawful or illegal about this. The court will decline to sanction a scheme of merger, if any tax fraud or any other illegality is involved. But that is not the case here. A company may, on its own, grow to capture a large share of the market. But unless it is shown that there is some illegality or fraud involved in the scheme, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... placed before the court by the concerned applicant seeking sanction for such a scheme and the court gets satisfied about the same. [6] That the proposed scheme of compromise and arrangement is not found to be violative of any provision of law and is not contrary to public policy. For ascertaining the real purpose underlying the scheme with a view to be satisfied on this aspect, the court, if necessary, can pierce the veil of apparent corporate purpose underlying the scheme and can judiciously x-ray same. [7] That the company court has also to satisfy itself that the members or class of members or creditors or class of creditors, as the case may be, were acting bona fide and in good faith and were not coercing the minority in order to promote any interest adverse to that of the latter comprising the same class whom they purported to represent. [8] That the scheme as a whole is also found to be just, fair and reasonable from the point of view of prudent men of business taking a commercial decision beneficial to the class represented by them for whom the scheme is meant. [9] Once the aforesaid broad parameters about the requirements of a scheme for getting sanction of the cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith on the side of the person who is alleged to have been unfair. I think that the applicant is faced with the very difficult task of discharging an onus which is undoubtedly the heavy one of showing that he, being the only man in regiment out of step, is the only man whose views ought to prevail. That is the difficulty he is faced with in the present case. I agree that certain criticisms set out in the applicant's affidavit show that a good case could be made out for the formulation of a better scheme, of a fairer scheme, one of one which would have been more attractive to the shareholders if they could have understood the implications of the criticisms. I have no doubt at all that a better scheme might have been evolved, but is that enough? Is it necessary to establish the validity of such an offer as put forward in the present case? Is there any point in the scheme on which a better view might have prevailed, and rather more generous treatment might have been offered to persons whose shares are sought to be expropriated? A better and fairer offer might have been made, possibly, but I do not think that because a scheme is not 100 per cent fair or right there is the kind of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tly complied with the provisions contained in Section 395, this Court cannot accord sanction to the scheme. If the proposed scheme is not a scheme under 391 but is a scheme or contract involving transfer of shares as envisaged by Section 395, no question of court according sanction to such a scheme arises because a scheme or contract involving transfer of shares as contemplated in Section 395 does not require sanction of the court. Only dissenting shareholders can move the court against compulsory acquisition on the allegation that the whole attempt of take-over is unfair. It is, therefore, necessary to find out whether this is a scheme of compromise and arrangement which would fall squarely and fairly within Section 391. If it falls under Section 391, it would be presently pointed out that even if it achieves the same result which would be achieved under Section 395, it would nonetheless be a scheme under Section 391 and can be sanctioned as a scheme of compromise and arrangement under Section 391. Section 391 provides for sanction of a scheme of compromise and arrangement. Such a scheme may provide an exceptional procedure to modify or abrogate the rights of shareholders, debentu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... achieved. A scheme of arrangement may also enable the company to acquire shares of the other company. This would be by way of arrangement between the company and its own shareholders. A rank outsider can also take over the other company by following the procedure prescribed in Section 395. The same result can be achieved by proceeding under Section 484. The question, therefore, is whether a particular scheme is one which falls under Section 391 or Section 395 or Section 484 must be examined in the background of its own facts. It may be that the ultimate result may be the same but that would not mean that it is a scheme not under one but other sections. The principal question is whether such a scheme by which one company is covered from independent public limited company into a wholly owned subsidiary company of the other public limited company could be sanctioned under Section 391. Mr. Shah may be right in saying that such a thing can be done under Section 391. That is not the test. The test is whether it could be done under Section 391. Now before referring to a decision on this point, I should like to notice that Sections 391, 393, 394 and 395 are in pari materia with Sections ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the word 'arrangement' as used in Section 391, obviously, the arrangement by which shares of one company are taken over by the other company would not be outside the scope of the word 'arrangement'. In this connection, I should first like to refer to In re Guardian Assurance Co. In that case the Guardian Assurance Company wanted to take over Reliance Marines Insurance Company Ltd., by proposing a scheme of compromise and arrangement under Section 120 of the Companies [Consolidation] Act, 1908, which again is in pari materia with Section 391 of our Companies Act. The proposed scheme was an extreme case to which the word 'arrangement' could be stretched to cover. By the proposed scheme, the capital of the Guardian was to be consolidated and redivided and such redivided shares were to be issued to the shareholders of Reliance Marine Insurance Company Ltd. [hereinafter referred to as Reliance] in proportion of 2:1. Now, the Guardian was not in a position to issue fresh capital. It was, therefore, provided that that portion of the shares held by shareholders of Guardian shall be compulsorily acquired for allotment to the shareholders of Reliance. The scheme i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ceiving one share of Reliance, could not be said to be an arrangement between the shareholders of Guardian and Guardian, it was observed as under: Then it is suggested that the proposition which the Reliance shareholders said they were willing to accept should be given effect to by an order sanctioning an arrangement between the Guardian Company and its shareholders which would make it obligatory upon a few dissentient shareholders in the Guardian Company if there be any dissentients, to contribute out of their own shares a certain proportion, and that proportion is made more workable by sub-dividing the shares of the Guardian into fully paid preference and ordinary shares not fully paid up. The details seem to me to be worked out with great care and great accuracy in the agreement, but it is not necessary in any way for me to discuss them here. I think what is proposed to be done in perfect good faith, and for very good business reasons, is not compromise, but is an arrangement proposed between a company and its members, using the words of Section 120, and that there is no necessity to put such limitation upon those words as Younger J. felt bound to do. Warrington L.J. and A.T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the procedure prescribed under Section 395. The scheme has in fact been sanctioned. It, therefore, appears both on principle as well as on authority well settled that where by a scheme partially of compromise and partially of arrangement the shares of one company are being taken over by another company converting the first mentioned company into a wholly=owned subsidiary company of the second mentioned company, it can nonetheless be a scheme of compromise and arrangement which if found to be just, fair, legal and workable and if properly approved can be sanctioned under Section 391. Even if the effect of sanctioning the scheme is take-over of the first company by the second company, it would be no answer to say that it can only be done under Section 395. In the aforementioned case, the contention raised was that where arrangement under Section 206 is in essence a scheme or contract for the purchase by an outsider of all the issued shares of the company, the court should not approve the arrangement unless both [1] the petitioner proves on full disclosure that the price is fair, and [2] the arrangement is approved by the 90 per cent majority referred to in Section 209. It was urg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot be rejected on the ground that the procedure prescribed in Sub-section [4A] of Section 395 is not carried out. In fact the consenting majority required in Section 391 is advisedly kept lower than the consenting majority required under Section 395. When a scheme under Section 391 is sponsored, at the outset, it must come before the court and the court has supervision over it at every stage. When it is proposed, the court can prima facie examine it while giving directions under Section 391[1] for convening meetings and the scheme cannot finally go through unless sanction under Section 391[2] and the court, apart from various legal technicalities, can refuse to exercise discretion in favour of the scheme if it is shown to be oppressive to the dissenting members or if it is shown that the majority has almost imposed itself upon the minority. The scheme or contract of transfer of shares as contemplated in Section 395 may not even come to the court. It can only come to the court if the dissenting minority challenges the proposed offer as unfair and the burden will be on them to show that the proposed offer is unfair. In a scheme under Section 391 the fact that the scheme is fair and r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... therefore, is maintainable. The word arrangement, though not defined specifically, has a wide range and ambit. The present scheme of arrangement is between the petitioner-companies and its shareholders and/or creditors and a trust. By that itself it cannot be said that the scheme of arrangement in question is not maintainable or not sustainable. The scheme is affecting the shareholders and the creditors as the cement division of the petitioners is being transferred to the transferee company. There is no objection raised even by the Regional Director about the maintainability of the scheme of arrangement. It is difficult to reject the whole scheme of arrangement like this, which has definitely an element of demerger and reduction of shares which are a permissible mode of various schemes under the provisions of Sections 391 to 394 merely on technical grounds. Investment Corporation of India Ltd., In re [1987] 61 Comp Cas 92 [Bom.], the word arrangement has been interpreted in a wider manner. Another case is Guardian Assurance Company, In re [1917] 1 Ch D 431 [CA] to demonstrate that the word arrangement has a wide meaning and interpretation, even under the English laws. The extract o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. These observations on the contrary support the position that the word arrangement" used in Section 391 is inclusive and that a scheme of arrangement which modifies rights of the shareholders can be brought under this section. Guardian Assurance Company, In re [1917] 1 Ch D 431 [CA]. the Chancery Division observed as follows: In think what is proposed to be done in perfect good faith, and for very good business reasons is not a compromise, but is an arrangement proposed between a company and its members, using the words of Section 120 and that there is no necessity to put such a limitation upon those words as Younger J. felt bound to do. With the greatest possible respect to him, having carefully considered his very able judgment, I am unable to come to the same conclusion as he did. I think the order ought to be made as asked by the petition. Warrington L.J. I am of the same opinion. The scheme which we are asked to sanction is no doubt one of a somewhat unusual nature, but for all that it may still be an arrangement within the meaning of the 120th section of the Act. At this juncture, it is necessary to refer to the arrangement in the present scheme in question ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e capital of the company by the consolidation of shares of different classes.' 26. From the above referred two judgments, it would clearly appear that the objections raised by the objectors that such Scheme is not envisaged under the Companies Act is not a good ground to oppose the sanction of the Scheme. In fact, all the petitioners are correct in submitting that the objections are raised by the objectors on an incorrect assumption that both the units of Core are being dealt with under the present Scheme. After going through the entire Scheme, I am of the considered opinion that in fact, the Scheme deals with only one unit of the petitioner-Core. In the opinion of this Court, demerger of one unit of a company would also come under an agreement/arrangement, because, if demerger is not taken to be an arrangement, then the Company would not be able to deal with its property in accordance with law. 27. According to the objectors, directors and promoters of Core are holding more than 50% equity shares of Core and would be benefited under the Scheme. The objections raised by the objectors, in the opinion of this Court are misconceived, firstly because it is undisputed that the pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rticulars, the Scheme is bad. In fact, the Scheme meets with the requirements necessary under the provisions of law. The Scheme in particular dos not make any attempt to suppress any fact. 29. The objection of the objectors say that valuation report was not supplied to them and therefore, the Scheme should not be accepted. Submissions of the petitioners are that Core and Nirma have stated on oath that they did not have copy of the report of valuation which was carried by M/s.Ernst & Young at the instance of ICICI and a party is not expected to place on record the documents which it does not have. According to them, report of M/s.Ernst & Young is available with Oman International Bank and HDFC and they are suppressing the same and are not producing it on the record. 30. It would be clear from the letter dated 10th February, 2005 [page-166 of the Company Petition No. 9/06] of ARCIL whereby it has sent copies of the said valuation report to various lenders as per the list at pages 167-169. HDFC Bank and Standard Chartered Bank are named in the same. Standard Chartered Bank was provided two copies; one in its personal capacity and second in its capacity as representative bank having ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gments of the Supreme Court reported in the case of Dr. Renuka Datla [Mrs.] v. Solvay Pharmaceuticals B.V. and Ors. and in the case of Rajasthan State Financial Corporation v. Official Liquidator and Anr. are concerned, those were on different facts. The said cases related to winding up. In the said cases, the Court held that before disposing of the property, High Court would be entitled to obtain fresh valuation report. The said decisions have no bearing on the present matter, because Core is not in winding up. If majority shareholders and the majority of the lenders are of the opinion that particular decision should be taken to receive best of the benefits and avoid delay, then further valuation report is not necessary. 32. So far as the respondents' objection regarding transfer of funds to subsidiaries by giving interest free loans is concerned, in the opinion of this Court, the objection cannot be considered in these proceedings. The act of the Board of Directors or the management of Core have nothing to do with the present Scheme. It is also to be noted that Core is not amalgamated in Nirma nor is in winding up. If ultimately it is found that the Board of Directors, Manag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll as criminal, by the appropriate court [Ratnamani Engineering Ltd., In re [1999] 33 CLA 358 [Guj] and the scheme deserves to be sanctioned subject to and without prejudice to the liability if any, in the civil and criminal proceedings in respect of past transactions. The sanction is hereby accordingly accorded to the scheme of compromise and arrangement and restructuring of the debt of the petitioner-company, copy whereof is annexure D to the petition. This Court hereby accords sanction to restructuring of the debt of the petitioner-company as envisaged in the scheme annexure D, subject to and without prejudice to the liability if any, in the civil and criminal proceedings in respect of past transactions. 33. From this judgment, it would be clear that the Scheme can always be sanctioned subject to and without prejudice to the liability, if any, in the civil and criminal proceedings in respect of the past transactions. The argument of objectors that the Scheme is vague and incomprehensible should not detain this Court unnecessarily because the Scheme is clear, nobody either raised an objection in the meetings held for the purpose or at the time of the discussion that the Scheme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to ARCIL had filed a suit before the Debt Recovery Tribunal for recovery of their debts. Once ARCIL had taken an action under the SARFAESI Act and took over possession of the assets of Core, then it was mandatory for BIFR to terminate the proceedings. If this is statutory legal position, then any action on the part of the trio, namely ARCIL, Core and Nirma, cannot be termed as conspiracy or collusion. 36. The objection of the objector in relation to Section 13 of the SARFAESI Act is that assets of Core were not valued nor any reserve price was fixed as was required under the rules framed under the said Act. It is also submitted by the objectors that under Section 35 of the Act, Scheme proceedings are not maintainable. Section 13 of the said Act reads as under: 13. Enforcement of security interest.-[1] Notwithstanding anything contained in Section 69 or Section 69A of the Transfer of Property Act, 1882 [4 of 1882], any security interest created in favour of any secured creditor may be enforced, without the intervention of the court or tribunal, by such creditor in accordance with the provisions of this Act. [2] Where any borrower, who is under a liability to a secured creditor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the management of such business of the borrower which is relatable to the security or the debt; [c] appoint any person [hereafter referred to as the manager], to manage the secured assets the possession of which has been taken over by the secured creditor; [d] require at any time by notice in writing, any person who has acquired any of the secured assets from the borrower and from whom any money is due or may become due to the borrower, to pay the secured creditor, so much of the money as is sufficient to pay the secured debt. [5] Any payment made by any person referred to in Clause [d] of Sub-section [4] to the secured creditor shall give such person a valid discharge as if he has made payment to the borrower. [6] Any transfer of secured asset after taking possession thereof or take over of management under Sub-section [4], by the secured creditor or by the manager on behalf of the secured creditors shall vest in the transferee all rights in, or in relation to, the secured asset transferred as if the transfer had been made by the owner of such secured asset. [7] Where any action has been taken against a borrower under the provisions of Sub-section [4], all costs, charge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not be ascertained, the liquidator shall intimate the estimated amount of workmen's dues under that section to the secured creditor and in such case the secured creditor may retain the sale proceeds of the secured assets after depositing the amount of such estimated dues with the liquidator: Provided also that in case the secured creditor deposits the estimated amount of workmens dues, such creditor shall be liable to pay the balance of the workmens dues or entitled to receive the excess amount, if any, deposited by the secured creditor with the liquidator: Provided also that the secured creditor shall furnish an undertaking to the liquidator to pay the balance of the workmens dues, if any. Explanation.-For the purpose of this sub-section,-- [a] record date means the date agreed upon by the secured creditor representing not less than three-fourth in value of the amount outstanding on such date; [b] amount outstanding shall include principal, interest and any other dues payable by the borrower to the secured creditor in respect of secured asset as per the books of account of the secured creditor. [10] Where dues of the secured creditor are not fully satisfied with th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the property, but simply acquires certain rights under the Act in regard to selling the property and distributing the receipts. Present proceedings are under Sections 391 to 394 of the Act. There is no sale of assets nor part of the undertaking under the SARFAESI Act and if there is no sale of assets, then question of valuation, fixation of reserve price, authority of ARCIL to sell the property under the Act and the Rules framed thereunder would not arise. Even otherwise, it is to be noted that report of Ernst & Young is available on the record, was available with ARCIL and they had invited public offers for disposal of the property. If Nirma was the only company to make its offer then, ARCIL could sell the property in favour of Nirma or could allow Core to float the Scheme for demerger so that in terms of Scheme, the property is demerged with Nirma for the same value which ARCIL was to receive otherwise. Present is not a case where anybody says that report of M/s.Ernst & Young is wrong report or Nirma was not the sole offerer or somebody had come forward to make better offer, or even the objectors have somebody with better offer. If offer made by Nirma continues to be the same ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and totality of the circumstances, I am unable to hold that the proposal and consideration of the Scheme under Sections 391 to 394 would run contrary to Section 13 of the SARFAESI Act and this Court would have no jurisdiction to grant or approve such Scheme. 40. One of the objections raised by the objectors is that the objectors have filed their case before the Debt Recovery Tribunal, therefore, this Court would have no jurisdiction to consider the Scheme and by grant of the Scheme as the objectors are to be non-suited by the Debt Recovery Tribunal, present proceedings are illegal. The petitioners have placed their reliance upon the judgment of the Supreme Court in the matter of Allahabad Bank v. Canara Bank and Anr. AIR 2000 SC 1535. So far as the right of the objector to proceed with the case before the Debt Recovery Tribunal is concerned, it would certainly stand if the Scheme proceedings are not approved by the High Court. Core certainly would have a right to take out proceedings for compromise. If the proceedings ultimately fail and the Scheme is not approved by the High Court, then right to proceed with the proceedings before the Debt Recovery Tribunal would stand, but it ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l and would have a binding effect on all concerned, and once the Scheme binds objectors, then they would not be allowed to say that despite approval of the Scheme by the High Court, they would be entitled to proceed in the Debt Recovery Tribunal. Judgment in the matter of Allahabad Bank [supra] was in altogether different context, there, the Supreme Court was not considering approval, sanction or rejection of the Scheme. It cannot be denied that in a pending litigation, a borrower can come forward for settlement and it would always be open to the lender to accept the terms of the settlement. If such authority is available to a borrower, then he can always come forward with a Scheme for compromise which is being offered to the creditors individually so also jointly. However, I would agree with the petitioner that if an individual lender can settle, then, there is no reason to hold that the lenders collectively cannot enter into the Scheme of compromise. 41. In the matter of Arvind Mills Limited [supra], the High Court has observed as under: There is no denying the fact that if the scheme is approved the objectors would not be able to get a money decree against the company. At the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ne by one. It is undisputed that five lenders of Class-A and one lender of Class-B had assigned their debt to ARCIL under the provisions of the SARFAESI Act. It is undisputed that on receipt of smaller amount by lending banks, they had assigned their right in favour of ARCIL. Neither the Companies Act nor the SARFAESI Act nor the Contract Act nor the Sale of Goods Act provide that if right to recover debt is purchased at a lower price, the right to recover would stand reduced to the price paid for acquiring the rights. In the present matter, undisputedly, ARCIL had paid lower price for acquiring greater right but if a person voluntarily without any pressure, duress or coercion taking into consideration the hard realities of life, sells his property at a lower price, then the law does not stop him from doing so. Any person who purchases valuable property for a lower price and element of fraud or dishonesty is not associated with it, then he becomes absolute owner of the right purchased by him. In case, property was to be sold by ARCIL under the provisions of the SARFAESI Act, could objectors say that there money should be paid to them in full and ARCIL be paid in proportion to the m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inancial asset and which are subsisting or having effect immediately before the acquisition of financial asset under Sub-section [1] and to which the concerned bank or financial institution is a party or which are in favour of such bank or financial institution shall, after the acquisition of the financial assets, be of as full force and effect against or in favour of the securitization company or reconstruction company, as the case may be, and may be enforced or acted upon as fully and effectually as if, in the place of the said bank or financial institution, securitization company or reconstruction company, as the case may be, had been a party thereto or as if they had been issued in favour of securitization company or reconstruction company, as the case may be. [4] If, on the date of acquisition of financial asset under Sub-section [1], any suit, appeal or other proceeding of whatever nature relating to the said financial asset s pending by or against the bank or financial institution, save as provided in the third proviso to Sub-section [1] of Section 15 of the Sick Industrial Companies [Special Provisions] Act, 1985 [1 of 1986] the same shall not abate, or be discontinued or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ht and the right enforceable against the company. If somebody purchases a fortune for song's price, then, he would be entitled to fortune and would also be entitled to recover market price of the fortune and none can say that he is required to sell the said fortune for the song's price. The conflict as projected by the objectors appears to be artificial. If the lenders are of the same Class, then conflict must be real. The objectors cannot say that though they are lenders of money, they are secured creditors of Class 'A' or Class 'B', but, they are absolutely different class, because they do not agree with what the majority says. In a given case, if the property was to be sold by the High Court in winding up or liquidation proceedings, then purchaser of the rights, i.e. ARCIL would be entitled to recover what it had purchased and not what it had paid to purchase the rights. If in such proceedings, the objectors would be taken to be the lenders of the same Class or birds of the same block, then in these proceedings or in the meeting, they cannot be treated to be different class of lenders. In the present case, all the lenders had a solitary object, that is to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that whether formation of the Class provides some advantages or disadvantages to the persons of same Class. It should be seen on the touchstone of the equity that whether the Scheme would affect everybody identically. The word identical here would not mean in terms of money but it will have to be seen that if somebody is making a sacrifice to the tune of 50%, then everybody should make sacrifice to the tune of 50%. In the present case, classification of creditors has to be on the basis of the terms offered to them under the Scheme and not on any other basis. It would be correct to say that ARCIL had purchased the debt at much lesser price and would therefore, suffer lesser in comparison to objectors but under the law it would have no bearing upon the Scheme proceedings. 47. In the present case, if the lending banks could sell their right to recover money, then, they could also enter into agreement with Core to settle their dues for the amount which was offered to them by ARCIL. If such settlement could be entered into between Core and lending banks, then, Core would have been benefited to the extent of full debt and not to the extent of price paid for the settlement. If Core is t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irect petition was filed with the Department of Company Affairs under Section 391 of the Act for approval of the new scheme of agreement between ITDC and Hotel Yamuna View Private Limited and their respective shareholders for Hotel Agra Ashok. Public Notices were directed to be issued regarding the scheme of arrangement and hearing through advertisement. After hearing the parties, the Department of Company Affairs gave approval to the scheme of agreement on 1st February, 2002. The demerger was complete on 1st February, 2002 and only thereafter, the shares of the Government of India in Hotel Yamuna Private Limited were sold to respondent No. 5 on 7th February, 2002 by the share purchase agreement. 48.2 The Supreme Court also observed that a policy decision should be least interfered in judicial review because the policy decision or the final verdict in the meeting would reflect the general consensus. 48.3 This judgement of the Supreme Court gives an appropriate reply to the objectors' objections that demerger is not permissible under Sections 391 and 394 of the Act and the Court can interfere in the matter if the majority is trying to give rough shod to the minority. 49. In t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... class of creditors or members or a class of members, as the case may be, would carry no meaning. Whatever may be the case, if the contention of learned Counsel for the objector is to be accepted, whether the compromise is one confined to a class of members or to a body of members as a whole would make no difference and in each case, a separate meeting will have to be called for only a class of members irrespective of the fact whether the scheme affects the class differently or not. Or in a given case no compromise or term is offered to a particular class of shares but may be confined to one or more than a class of shares. Therefore, before adverting to the question whether the appellant-objector constitutes a separate class of shareholders or not, it has to be seen whether any different terms have been offered to different classes of creditors or members and whether any classification of members is required to be made in accordance with those distinctions in terms of the compromise offered to them and whether any such separate meeting was required to be called. The classification of members or creditors will be founded on the basis of the difference in the terms offered under the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tatus of distinct class to any such member so long as under the scheme they are not treated differently. Any other view will lead to strange and chaotic results. Ought one to know that who stand today apart may be united tomorrow and vice versa, those in conflict may unite. If such interest simpliciter were to be the relevant consideration for treating them as a separate class, any private dispute between joint shareholders or groups of shareholders about distribution of a legacy would result in conferring the distinction of a separate class on each of the contesting claimants. That, in our opinion, has no place in the scheme of provisions. The class of creditors or members envisaged under Section 391 is directly related to interrelationship between the company and the shareholder on the basis of rights and obligations attached to the class of shares issued and such rights being affected by the proposed scheme of arrangement or compromise differently and not personal rights of the holders of shares emanating from their right of inheritance or personal contracts between themselves. Who is on the board of a company or is in the driver's seat in controlling the affairs of a compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss a party to the scheme and to obtain the consent of all its members to be bound. It is, however, necessary for at least one class meeting to be held in order to give the Court jurisdiction under the Section. From the aforesaid, it is clear that what is the primary importance for the purpose of constituting a class requiring a separate meeting thereof, is different treatment given to a group under the proposed scheme. No separate classification is required until a group is treated differently under the scheme. The illustration clarifies the position transparently that where rights of ordinary shareholders are to be altered but those of preference shares are not touched, a meeting of ordinary shareholders alone is required but not of preference shareholders. If amongst the ordinary shareholders, some group is to be treated differently than the other group, that too, within the class of ordinary shareholders, a separate meeting may have to be held for the purpose of binding different interest which are treated differently under the scheme. The term of 'any interest treated differently under the scheme' is important. The fact that the shareholders-members of the same class, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1870, was entered into between the plaintiff-company and another company under which it was agreed that the plaintiff-company shall be transferred to another company in lieu thereof, all the holders of the policies shall accept certain reduced payments from the transferee company which was approved by a majority of shareholders. Mr. Dodd did not assent to the arrangement. After the scheme was sanctioned, the plaintiff-company had filed a suit against Mr. Dodd for recovery of the two loans raised against the two policies taken out by him. In defence, Mr. Dodd claimed full amount payable under the policy as set off which but for winding up would have been payable to him upon the policies. The plaintiff-company put forward the said arrangement to negative the claim of set off. It is under these circumstances when the matter reached the Court of Appeal, Bowen J., in his judgement concurring with Lord Esher M.R., stated thus (at page 583): If we are to construe the section as it suggested on behalf of the plaintiffs it ought to be construed we should be holding that a class of policy holders whose interests are uncertain may by a mere majority in value override the interest of those ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve interests because of the state of the things existing on the date of calling of the meeting in relation to rights and liabilities vis-a-vis the company. 50.1 From this judgement, it would clearly appear that there is a marked distinction between the phrases, rights and interest of persons, who have identical rights. From this judgement, it would also be clear that persons having identical rights should be treated in identical manner and must be placed in the same class. All the shareholders whether they have purchased the share at base price or market price and continue to be the shareholders would, therefore, constitute one class. The secured creditors/Class 'A' lenders who have charge over the immovable properties, irrespective of the terms of the loan agreement would be taken to be secured creditors and would constitute a different class. People who have advanced loan on hypothecation of the goods, would be treated as a Class with another lenders. 51. In the said matter, the Division Bench of this Court observed as under: ...what is the primary importance for the purpose of constituting a class requiring a separate meeting thereof, is different treatment given to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs to sustain their claim of separate class distinct from other secured creditors. The inter se differences/disputes amongst some secured creditors cannot be the criterion for constituting a separate class of secured creditors in foreign currency. Personal conflict of interest of the objectors with ICICI would be totally foreign to the scope of class meeting convened by the company to consider the scheme. 52. The said judgement of the High Court was approved by the Supreme Court in the matter of Miheer H. Mafatlal v. Mafatlal Industries Limited, reported in 87 Comp. Cases 792. The Supreme Court has observed as under: So far as the articles of association of respondent-company are concerned they also contemplate two classes of shareholders No separate class of equity shareholders is contemplated either by the Act or by the articles of association of respondent-company. The appellant is admittedly an equity shareholder. Therefore, he would fall within the same class of equity shareholders whose meeting was convened by the orders of the company court. Even though the Companies Act or the articles of association do not provide for such a class within the class of equity shareholders ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the scheme from commercial point of view. Consequently, there was no occasion for convening a separate class meeting of the minority equity shareholders represented by the appellant and his group as tried to be suggested. 52.1 In this connection, the Supreme Court referred to what the learned author Palmer in his treatise on Company Law, 24th Edition, has to say on, What constitutes a class: The court does not itself consider at this point what classes of creditors or members should be made parties to the scheme. 52.2 The Supreme Court then proceeds to observe that: It is, therefore, obvious that unless a separate and different type of scheme of compromise is offered to a sub-class of a class of creditors or shareholders otherwise equally circumscribed by the class no separate meeting of such sub-class of the main class of members or creditors is required to be convened. 53. In the case of D.A. Swamy and Ors. v. India Meters Ltd. [1994] 79 Comp Cas 27, the Division Bench of Madras High Court has observed that: Broadly speaking, a group of persons would constitute one class when it is shown that they have conveyed all interest and their claims are capable of being ascerta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the scheme cannot give any special treatment to some creditors. Simply because some of the secured creditors have some dispute between them or have been fighting litigation inter se can be no ground for treating litigating secured creditors differently from the body of secured creditors. There cannot be a class within the class and the class has to be of one type of creditors, namely, secured creditors, unsecured creditors and working capital lenders as all the secured creditors have similar rights in the company. As far as commonality or conflict of interest is concerned all the secured creditors have a common interest of securing their dues in proportion to the amount lent and the terms or conditions thereof. It is not the say of the objectors that their rights are dissimilar to the rights of supporting secured creditors. As far as the body of secured creditors is concerned, there can be an effective consultation as far as their dues/interest/rights against the company under the scheme are concerned. It is not the say of the objectors that in the meeting of July 13, 2001, they were not allowed to participate in the proceedings of the meeting nor any secured creditor including th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ness. On 3rd September, 1993, the company transferred its Personal Lines business to another company. From that date the company had thus been in run-off. The Personal Lines policies were all claims made policies. It appeared very unlikely that there could be any new valid claims on the Personal Lines policies. The London Market policies did not involve any long tail risks. Any claims in respect of such policies were likely to have been already made. The quantum of the company's anticipated liabilities was very small compared to the quantum of its assets. It was anticipated that the run-off would take several years to complete. All policyholders present in person or by proxy at the statutory meeting convened to consider the scheme voted in favour of the scheme. Although the number of those who voted was small compared to the number of those entitled to vote the value of the claims held by those who voted represented a substantial portion of those entitled to vote. The Chancery Division held as under: (1) The meeting was validly held because there was only one class of creditors. Whilst those summoned to attend the meeting had different types of insurance, given the nature of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s must be regarded as persons in different classes in the context of the question with whom is the compromise or arrangement made. According to the Court, in each case, the answer to that question will depend upon analysis (i) of the rights which are to be released or varied under the scheme and (2) of the new rights (if any) which the scheme gives, by way of compromise or arrangement, to those whose rights are to be released or varied. It is in the light of that analysis that the test formulated by the Lord Justice Bowen in order to determine which creditors fall into a separate class that is to say, that a class must be confined to those persons whose rights are not so dissimilar as to make it impossible for them to consult together with a view to their common interest. 55.1 From this judgement, it would also appear that the meaning of the word 'class' was appreciated in light of a judgement of Justice Bowen LJ in Sovereign Life Assurance Company v. Dodd [1892] 2 QB 537 at 583, as under: The word 'class' is vague, and to find out what is meant by it we must look at the scope of the section, which is a section enabling the Court to order a meeting of a class of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... supra), in fact, do not support the case and cause of the objectors. In the matter of Arvind Mills (supra), the High Court held that there was no conflict of commercial interest with the objectors and other secured creditors and if in this case, it is held that there is no conflict of commercial interest amongst the lenders, then, the judgement in the matter of Arvind Mills Limited (supra) would, in fact, help and support the case and cause of the petitioners. 59. According to the objectors, the Scheme must fail because there were inadequacies in the explanatory statement and in particular, in relation to the following explanatory statements: (i) ARCIL had proposed the scheme; (ii) ARCIL had a special role including the recovery of its dues; (iii) Possession of Sachana Unit has been handed over to Nirma; and, (iv) There was an injunction order issued by the Debts Recovery Tribunal operating against Core prohibiting it from transferring its assets in the suit filed by HDFC Bank. 60. The afore-quoted Sections 393(1)(a) of the Act provides that the explanatory statement must contain: (a) terms of the scheme of the arrangement; and, (2) its effect and in particular, any mater ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce the capability of the amalgamated company to invest in larger and sophisticated projects to ensure rapid growth. The amalgamated company's Textiles Division with five operative units at its disposal will have flexibility in its operations. So far as the aforesaid explanatory statement is concerned it gives sufficient indication regarding the pliability and usefulness of the proposed Scheme of Amalgamation of transferor-company MFL with the transferee-company MIL. However, the special grievance of the appellant voiced by his learned Counsel is to the effect that the real interest underlying the scheme of merger was that of the Director - Shri Arvind Mafatlal and his group who were at the helm of affairs of the transferee-company. The learned Senior Counsel, Shri Shanti Bhushan, in this connection submitted that under Section 393(1)(a) of the Act, the company is enjoined to mention in the statement material interest of the Director, Shri Arvind Mafatlal, in the Scheme which is of a special nature as compared to the interest of other shareholders and it was also necessary to mention the effect of the compromise and arrangement on such special interest of Shri Arvind Mafatlal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d as under: Miheer H. Mafatlal was to get exclusive control to MIL to the exclusion of Arvind N. Mafatlal and his two brothers. Under the proposed family arrangement M. Fine was to be hived off from MIL and the control and management of M. Fine was to be held by Arvind N.Mafatlal and that of MIL was to be handed over to the objector, Miheer H. Mafatlal. This family arrangement has suffered rough weather. Suit No. 1010 of 1987 was filed by Arvind N. Mafatlal against Miheer H.Mafatlal and others before the Bombay High Court alleging that another agreement subsequent to the said family arrangement has come into existence under which Miheer H. Mafatlal and other brothers of Arvind had agreed to transfer all their holdings in MIL to A. N. Mafatlal, drawing a curtain on the family arrangement of 1979. Miheer H. Mafatlal has filed a counter-claim in that suit claiming enforcement of family arrangement of 1979. The said dispute and the outcome thereof will have a direct effect on the respective interests of the shares held by A. N. Mafatlal, Miheer H. Mafatlal and other members of the Mafatlal family, and trusts under them. He also invited our attention to the observations of the Divis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appellant on the one hand and Arvind Mafatlal, Director of the transferee-company MIL on the other regarding the right to hold shares in the company can have any linkage or nexus with the Scheme of Amalgamation of these two companies which was put to vote before the equity shareholders. It is easy to visualize that if the suit filed by Arvind Mafatlal against the appellant succeeds and the appellant's counter-claim fails then all that would happen is that the appellant will have to sell his shareholding which is only 5% in the transferee-company to the plaintiff, Arvind Mafatlal. That has nothing to do with the equity shareholders as a class, which was called upon to decide whether the scheme of merging the transferor-company MFL with the transferee-company was for the benefit of the shareholders as a class. The equity shareholders of the transferee-company had to decide in their commercial wisdom whether it is worthwhile to have a larger body of shareholders on account of the merger so that apart from the shareholdings of the transferee-company its objects would also get diversified and its field of operation would be enlarged with the prospects to hike in the dividend availab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that mention about such an interest was outside the statutory requirements of Section 393(1)(a) as rightly held by the learned single Judge whose view was erroneously upset by the Division Bench. However, in any case we are in entire agreement with the subsequent reasoning of the Division Bench for approving the decision of the learned single Judge on this aspect, namely, that such non-disclosure of interest had no impact on the voting pattern adopted at the meeting by the equity shareholders who are called upon to approve the scheme. It may also be noted in this connection that the resolution of the equity shareholders approving the Scheme of Amalgamation was passed with overwhelming majority by members including through proxies, present and voting. It projected the following picture: In favour Against Total (i) No. of Members 5,298 143 5,441 (ii) No. of valid 19,36,964 86,061 20,23,025 votes From the pattern of voting it became apparent that out of 100% of the share capital 75.75 per cent in value participated of which 95.75 per cent voted in favour of the proposed scheme. Out of 95.75 per cent of the votes in value, a paltry 8.43 per cent votes had been attributed to Arv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ver thought that information about the pendency of the litigation between Arvind Mafatlal, Director of the respondent-company and himself was so important that it was required to be brought to the voters' notice even though he had opportunity to do so by remaining personally present in the meeting for that purpose. It, therefore, clearly appears to be an afterthought when he put forward such an objection for the sake of it at the time of opposing the Scheme which was put for sanction of the Court. 34. It may also be kept in view that the explanatory statement in no way emphasised that it is the management of the transferee-company by Shri Arvind Mafatlal which is going to be better monitored and managed by him after the merger in question. In other words management of the company is not at all a germane consideration for the scheme. Consequently, whether the management remains with Arvind Mafatlal or in future may get changed and go in the hands of the appellant is not a consideration which has any linkage or nexus with the Scheme. Consequently, the interest of Arvind Mafatlal in the shareholding or likely future impact thereon by the litigation was de hors the Scheme in ques ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Debts Recovery Tribunal or Civil Court that Core have violated the terms of injunction. The injunction was, not to hand over the possession or transfer the property. Undisputedly, Core did not transfer the property nor did it hand over the possession of the property to a third party. In fact, the possession was taken from them by ARCIL under its statutory rights. Mention or non-mention of the injunction in any case would not have benefited the case and cause of the objectors. From the records, it would also be clear that the order passed by this Court on 28th October, 2005, directing convening of the meeting, does refer to this order and the said order of the Court was placed in the meeting of the lenders. According to the petitioners, the order of the Court was made known to everybody and the same was disclosed in the meeting of the lenders. What the petitioners propose to contend is that if the injunction and its effect was not immediately informed, then too, at least, people knew about it and after going through the orders passed by this Court did not raise any objection that the fact was not brought to their notice in the explanatory statement. 67. For the reasons stated above ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reliefs would not have a bearing on the settlement, which is to be arrived at today. It is also the submission that Nirma agrees to take Sachana Unit with all its assets and liabilities and as on today, one cannot ascertain worth of the assets and/or quantum of liabilities. According to them, the compromise is a package deal for demerger of the assets and liabilities as exist today and to what extent the assets would crsystallise or liabilities would prop up at a future date would be in the realm of speculation and this cannot, therefore, invalidate the Scheme proceedings. According to them, under the Scheme of Demerger, Sachana undertaking with all liabilities and its assets would stand vested into Nirma. According to them, if Nirma is agreeable to take over Sachana undertaking under the Scheme of Demerger, then, Nirma would be entitled to all the benefits and would also suffer the liabilities. 70. In the opinion of this Court, the argument of the petitioners must prevail. Once it is held that on payment of the amount under the Bank Guarantee, HDFC Bank had become the lender of money and under the Scheme of Demerger, all assets and liabilities of Sachana Unit would vest in Nirma, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to raise this objection. The petitioners submit that the Scheme proceedings are single window clearance and while passing the order in the Scheme proceedings, this Court can sanction reduction of the share capital, which can be part of the very Scheme and it would not be necessary to convene a separate meeting for considering such reduction. 72. In the matter of Manek Chowk and Ahmedabad Manufacturing Company Limited, 40 Comp.Cases 819, this Court has held as under: That takes me to the last attack under the head reorganisation of share capital", namely, that the scheme envisages reduction of share capital and that cannot be done without following the procedure as prescribed in Section 100 onwards of the Companies Act, even if it be done as part of the scheme. I have already pointed out above that reorganisation of the share capital can be carried out as a part of a scheme of compromise and arrangement under Section 391 without following the whole gamut of the procedure prescribed for the same in other parts of the Companies Act. However, Rule 85 makes a special departure in case of reduction of share capital when it is to be carried out as part of the scheme of compromis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... confirmed. I am however prepared to proceed on the assumption that even if the proposed scheme of compromise and arrangement envisages reduction of share capital which is lost or is unrepresented by available assets the same cannot be done except by following the procedure specifically prescribed in Section 100 onwards of the Companies Act. It is, therefore, necessary to find out whether the procedure therein prescribed has been carried out by the company or not. There is nothing objectionable in the company proposing a scheme of compromise and arrangement simultaneously proposing reduction of share capital and both can be considered and approved simultaneously. This is borne out by the observations in In re Tata Iron and Steel Co. Ltd. In that case it was contended that the scheme which effects alteration in the memorandum or articles of association without proceedings having been taken under the Act in the manner laid down by the Act for the purpose of effecting such an alteration cannot be sanctioned unless separate proceedings are taken for alteration in the memorandum and articles of association. Negativing this contention, it was held that where the Act lays down express pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... apital, that is to say, under Section 55 confirm the special resolution for reduction of capital, and, under Section 153, sanction the scheme. If, however, the requirements of Section 55 and other sections have not been complied with, the court may direct the application for sanction to stand over in order to enable the company to advertise the petition and otherwise comply with the requirements of the Act for reduction of capital, as was alone In re Cooper. It does appear well settled that where the scheme of compromise and arrangement comprises within its ambit reduction of share capital, the procedure for reduction must be gone through but if it is shown that the procedure prescribed under Section 100 onwards has been carried out simultaneously while submitting the scheme for approval of the creditors and members, the court can, while sanctioning the scheme, sanction reduction of share capital. The important thing to find out would be whether the procedure for reduction of share capital wherever it is mandatory has been strictly carried out and wherever it is directory has been substantially complied with. Before one can find out as to what exact procedure should be followed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spect of unpaid share capital or payment to any shareholder of any paid up share capital. That is not the case here. It is common ground that reduction is by way of cancellation of the paid up share capital which is lost or is unrepresented by available assets. Unless, therefore, the court otherwise directs, the procedure prescribed under Sub-section (2) of Section 101 is not mandatory in this case. Therefore, in order to effect reduction of share capital by way of cancellation of paid up share capital which is lost or is unrepresented by the available assets, the company will have to adopt a special resolution to be styled as resolution for reducing the share capital in a general meeting and then apply for confirmation of the reduction of share capital. For the reasons hereinbefore mentioned, I will hold that the company has given notice of 21 days' duration and the notice convening the meeting served upon the members disclosed the resolution that, while approving the scheme, the members should approve the reduction of share capital. Resolution approving the scheme has been passed with statutory majority. The only question would be whether the intention to move the resolution ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... antage of such set off, then, the objectors cannot be allowed to say that the Scheme would be a fraud on revenue. It would be correct to say that what is permissible under the law can never be regarded as contrary to the public policy or fraud on revenue. 74. In relation to the objection regarding the share exchange ratio, the petitioners have submitted that none of the objectors-Banks are shareholders of Core or Nirma and therefore, they are not entitled to raise such objection. From the submissions made by the petitioners, it would clearly appear that the exchange ratio is fixed on the basis of the report of M/s. RSM & Company, Chartered Accountants of Mumbai. According to them, this report was placed at the meeting of the shareholders and the lenders and no objection whatsoever was raised in any of the meetings as to fixation of the said ratio. In the opinion of this Court, if by allotment of shares of Nirma to the shareholders of Core, the said shareholders are to be benefited, then, the present objectors cannot have any objection. In case of sale of the assets and winding up of the company, the shareholders of Core would not get anything. If under the Scheme, such shareholder ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sel for the appellant, in this connection invited our attention to the observation of the Division Bench in its judgement at page 375 wherein it has been observed that if one were to examine the exactitude of exchange ratio that may be offered fairly on the arithmetic scale by taking into consideration various details, there is some force in what were suggested by Mr. B.R. Shah on behalf of the appellant. However, keeping in view the scope of enquiry which the Court is required to undertake and with whose findings we are concerned, it will not be permissible for us in law to undertake this exercise in the facts and circumstances of the present case in absence of bona fides". We fail to appreciate how this observation can be of any avail to the learned Senior Counsel for the appellant as all that the Court wanted to suggest was that even assuming that some other exchange ratio can be suggested to be a better one, it was for the equity shareholders who acted bona fide in the interest of their class as a whole to accept even a less favourable ratio considering other benefits that may offset such less favourable ratio once an amalgamation goes through. We wholly concur with this v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d out in the said valuation, it is not for the Court to substitute its exchange ratio. It would also be clear from this judgement that if the overwhelming majority of the shareholders of the two companies accept the share exchange ratio, then, it is not for the Court to substitute its own wisdom because the shareholders otherwise were entitled not to accept the share exchange ratio. 76. The petitioners have submitted that there is no variation in the value of votes cast by ARCIL, Niya Finstock Pvt. Ltd. and Astramed Technologies Ltd. According to them, there is no variation between the vote of ARCIL as per the books of Core and as recognised in the meeting of the lenders. According to them, in response to the order made by this Court, ARCIL had filed two affidavits and has given value of different debts, being the value of the debts assigned on the date of assignment to it and the account books of Core, the value is taken as on cut off date, that is, 30th November, 2004. According to the books of Core, the principal value of debt is ₹ 371.91 crores in relation to Class A" lenders, while according to ARCIL, the value of debt would be ₹ 373.88 crores. The difference ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mitted them to take away their plant, Nirma is not permitting them to take away their plant. 80. The petitioners have submitted that this issue does not arise out of the Scheme proceedings. They do nowhere say that the power plant belongs to Core or is a part of the Scheme or has been transferred to Nirma. If the power plant does not belong to Core or is not being transferred in favour of Nirma, then, Nirma would not be entitled to retain its possession. True it is, that the Apex Court, in the matter of Nocil v. Mafatlal Industries Limited , has observed that such would be an issue beyond the scope of consideration in a matter relating to sanction of the Scheme, but, in the opinion of this Court, it must be observed in favour of IDBI that if Core or Nirma does not permit them to have the possession of their power plant, then, they would be entitled to take appropriate legal proceedings against Core and/or Nirma. At this stage, I must advise Core and Nirma that if the property does not belong to them, then, they should not create unnecessary complications in the matter and should always act as honest business people, who do not grab property of others. 81. Taking into consideratio ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
