9911796707
TMI Blog2019 (7) TMI 1190X X X X Extracts X X X X X X X X Extracts X X X X ..... ic limited company listed on National Stock Exchange as well as Bombay Stock Exchange. The appellant company has raised several loans from Banks as well as Financial Institutions including Short Term Loans to build new production capacities compliant to USFDA standard. The appellant could not maintain financial discipline and cases were filed against the company in DRT by the Banks and Financial Institutions. The company arrived at one time settlement with the Banks/Financial Institutions and settled the amount. To tide over the sudden financial crisis, the appellant raised Rs. 72.5 crores from the international market through an issue of global depository receipts. The appellant faced difficulty in servicing its obligations vis a vis the public deposit holders but also in relation to the credit facilities extended by different banks and financial institutions. Many cases were filed against the company which were in the nature of civil cases, proceedings under Section 138 of Negotiable Instruments Act, winding up petitions by the creditors, the petitions filed before DRT, Delhi, Chandigarh and Mumbai and the proceeding s under the Consumer Protection Act and arbitration proceedings ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... both pre and post maturity will be paid alongwith the last instalment. vi) The company shall issue post dated cheques for first instalment to all the depositors who have submitted/surrendered the original fixed deposit receipt, on demand by the company. vii) The above scheme will be applicable to all depositors whether over due or yet to mature and whether any application has been filed before the Company Law Board or not. viii) The scheme shall be effect from the date of this order. While passing the order dated 19.8.2003 the then Member, Company Law Board also gave certain directions to the company to comply with. 4. From the record placed before us it is seen that the company did not comply the orders fully and when the company did not comply the orders, ROC Jalandhar filed prosecution against the company and its officers on 26.3.2004 before the Court of Chief Judicial Magistrate, Solan undersection 58-A (10) and 58-A read with Rule 3(2) for accepting of deposits in excess of prescribed limit. The prosecution under Section 58-A read with Rule 10 for non-filing of return of deposits as at 31.3.2003 and under Section 274(1)(g) read with Companies Disqualification of Direc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eking sanction of Scheme of Arrangement and compromise between the appellant company and its Fixed Deposit Holders. Hon'ble High Court of Himachal Pradesh, Shimla vide order dated 4th August, 2009 (Page 913) sanctioned the compromise and arrangement and posted the matter for 8th September, 2009 (Page 917). The appellant company intimated about the sanction of scheme to National Stock Exchange and Bombay Stock Exchange vide letters dated 12.8.2009 (Page 918 and 919) and also intimated that the Board of Directors in its Meeting held on 12.8.2009 has made an allotment of 9,24,90,413 equity shares of Rs. 2/- each to the Fixed Deposit Holders of the company at a price of Rs. 11.32 per share which has been arrived at in accordance with the terms of the approved scheme and the pricing formula specified in SEBI(DIP) Guidelines. Compliance affidavit dated 19.8.2009 (Page 921-923) of Shri Rajiv Jain, DGM (Finance) of the appellant company was filed. 7. Being aggrieved by the impugned order dated 4th August, 2009, the Central Government, Ministry of Corporate Affairs through ROC, Jalandhar filed Company Appeal No.2/2009 before the Hon'ble High Court of Himachal Pradesh, Shimla levelling vari ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l Pradesh thereafter. In the hearings held on 7.11.2016 and 12.12.2016 and on few earlier dates before the Hon'ble High Court of Himachal Pradesh, only the counsel for the petitioner company and the Union of India through Assistant Solicitor General of India had been appearing. Thereafter the petition was transferred to the National Company Law Tribunal, Chandigarh in view of Rule 3 of the Companies (Transfer of Pending Proceedings) Rules, 2016. 12. After service of notices to the parties concerned, the NCLT heard the counsel for the parties. After hearing the parties, NCLT, Chandigarh passed the impugned order dated 12.3.2018. The relevant portion of the order is as under:- "123. In view of the aforesaid discussion, CA No.49 of 2008 seeking approval of the scheme of arrangement with the FD holders is dismissed. With regard to the prayer made originally in CP No.05 of 2004, the matter having been settled with the other creditors admittedly the same stands disposed of having been rendered infructuous. However, this order will not affect the allotment of shares to the FD holders who have traded the shares to the third parties or transferred the allotted shares, for which it shall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter dated 12.8.2009 intimated to the National Stock Exchange and Bombay Stock Exchange about the allotment of these shares. 15. Appellant stated that the Ministry of Corporate Affairs filed Company Appeal No.2/2009 before the Hon'ble Division Bench of Hon'ble High Court of Himachal Pradesh which passed the following order on 27.8.2009:- "Company Appeal No.2/2009 Heard. Admit. Company Application No.20/2009 Heard at length. Respondent may proceed to implement the scheme, as approved by the Court, vide impugned order, but such implementation shall be subject to the final decision in the main appeal. Liberty to make mention for early haring. Xxxx August 27, 2009 Sd/- Surjit Singh, J Sd/- Surinder Singh, J Appellant stated that the said order dated 27.8.2009 was also communicated to the National Stock Exchange and Bombay Stock Exchange. Appellant stated that on 2.2.2010 (Page 1 para 1(e) of Bullet Points) the appellant wrote to the BSE for listing of the shares issued and on 17.2.2010 (Page 1 para 1(f) of Bullet Points) the NSE and BSE granted their listing and trading approval and in turn the appellant informed the FD holders who were issued shares that the shares ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has rightly decided the company petition. The questions of law are very well decided by the Tribunal vide its order dated 12.3.2018 raised by the appellant have already been covered by the Tribunal. ROC stated that the only question of law which may arise for consideration is whether a company can have a compromise with Fixed Deposit holders under Section 391/394 of the Companies Act, 1956 under which shares can be allotted in lieu of Fixed Deposits particularly when part of the principal amount and entire interest is waived off. Respondent stated that this question of law is already settled by Hon'ble Bombay High Court in the matter of Ipco Papers Ltd, MANU/MH/0012/1982 (1984) 55 Comp Case 281 (Bombay), holding that the depositors, who are governed by the provisions of Section 58-A and the rules made there under stood outside a proposal for a scheme of compromise. Respondents further stated that the rights and remedies enacted in respect of deposits invited or received from the public by a company would be nullified if a company is allowed to launch a proposal for compromise in respect of such public deposits. ROC further stated that the same view was taken by Madras High Court i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rayer was made by the appellant company to withdraw the petition filed under Companies Act, 1956 and to file fresh petition under Companies Act, 2013. 30. ROC stated the Learned NCLT has cancelled only those shares on which third party interest has not been created, as those shares have not been sold by the fixed deposit holders. The shares are cancelled and fixed deposit holders are to be repaid. ROC stated that this is a very simple action and there is no question of any difficulty in implementation of the order. ROC further stated that the SEBI has nothing to do with a scheme under 391/394 of the Companies Act, 1956. 31. ROC stated that there is no question of reduction of the share capital when the increase in capital by issue of shares to fixed deposit holders is not approved. Now the share capital of the company will be increased for the capital issued to the fixed deposit holders who have already sold their shares, hence question of any reduction in share capital does not arise. 32. ROC stated that illegal things cannot be legalized on the ground that it will be a loss to some shareholders and a profit to the others as such no one is entitled for illegitimate gain. ROC fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... achal Pradesh. 37. ROC stated that when order is subject to final decision of the main appeal, the final order has to impact everything which was subject to the final outcome. ROC stated that now the final outcome is rejection of the scheme and everything has gone which was subject to final outcome. ROC further stated that SEBI was not given any authority under Section 391/394 of the Companies Act, 1956. 37. ROC stated that the NCLT has not cancelled the shares which have been sold by the fixed deposit holders. ROC further stated that the illegal action which is contrary to law in a valid meting has no meaning. The meeting may have been valid but the decision taken in the meeting was not as approval of a scheme of compromise with the fixed deposit holders was against the public policy and contrary to law. 38. At last the ROC prayed that the appeal filed by the appellant may be dismissed. 39. During the pendency of the appeal, an IA No.1325/2018 was filed by the applicants/Intervenors for impleadment. The same was allowed and the parties were directed to file their reply to implead application. 40. Rejoinder has been filed by the appellant thereby reiterating the submissions ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e meeting was not valid as approval of a scheme of compromise with the fixed deposit holders was against the public policy and contrary to law. Learned counsel for Respondent/ROC further argued that the Respondents filed appeal before the Division Bench of Hon'ble Court who at the admission stage ordered that the appellant may proceed to "implement the scheme" but such "implementation shall be subject to the final decision in the main appeal". Learned counsel further argued that the appeal filed by them was finally heard and the Division Bench allowed the appeal, set aside the order dated 4.8.2009 and remanded the matter to the Ld. Single Judge to hear the same afresh. Learned counsel further argued that the appellant filed Civil Appeal before the Hon'ble Supreme Court against the order of the Division Bench and the Hon'ble Supreme Court vide its order dated 14.1.2011 (Page 1017) ordered "We are not inclined to interfere with the impugned order/judgement. However, in the facts and circumstances of these cases, we request the learned single Judge to decide the matters as expeditiously as possible." Learned counsel for the Respondent argued that the matter was transferred to NCLT, wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... approved the scheme and as such NCLT did not have the right to dismiss the scheme as the same have gone out of its jurisdiction. Learned counsel for the appellant further argued that the dismissal of second motion by NCLT not legally tenable as High Court had already allowed first motion and as such NCLT could not have gone on the issue of jurisdiction. Learned counsel for the appellant further argued that the order of NCLT amounts to reviewing the order of High Court which in any event NCLT did not have jurisdiction to do so. We find no force in this argument. In Second Motion it is open for NCLT to take a comprehensive view of the procedure followed and legality or otherwise of a scheme proposed. 46. Learned counsel for the Respondents argued that the scheme approved by Learned Single Judge was set aside/dismissed by the Division Bench of the High Court and the order of the Division Bench of the High Court was duly upheld by the Hon'ble Supreme Court and that the Learned NCLT after hearing the representatives of the Central Government, as directed by Division Bench of High Court and Supreme Court, passed a speaking and a well reasoned order dated 12.3.2018, therefore, it cannot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urther argued that the Ministry of Corporate Affairs through Regional Director having jurisdiction in the matter was having the right to make representation under Section 394A of the Act, 1956. Learned Counsel for Respondent further argued that the SEBI has never said that the shares issued to fixed deposit holders cannot be cancelled. Learned counsel for the Respondent also argued that there is no question of reduction of share capital when the increase in share capital by issue of shares to fixed deposit holders is not approved. 50. We have heard the parties on this issue. We have also gone through the record also. We noted that after passing of the order dated 4.8.2009, the appellant allotted 9,24,90,413 equity shares of Rs. 2/- each to the FD holders @ Rs. 11.32 per share as per SEBI formula. The appellant company vide its letter dated 12.8.2009 (Page 918 and 919) intimated to the National Stock Exchange and Bombay Stock Exchange to this effect. Here in the letter dated 12.8.2009 of the appellant to Stock Exchanges, the last line is important which is as under: "Kindly take the same on your record" It clearly shows that the appellant had only intimated the said two Stock Ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4.8.2009 has been set aside. In our view the appellant, seeing the rider imposed in the order dated 27.8.2009 have got listed the shares knowing fully well that scheme if not approved it may have to take remedial measures to abide by the order as stated by them in letter dated 2.2.2010 addressed to Bombay Stock Exchange. In fact, in our view if such shares were being pushed into listing, in the face of Order of Division Bench dated 27.08.2009, there was duty to ensure such shares carried information/caution that they were being listed and are subject to final order of Hon'ble High Court. On a reference made by Ministry of Corporate Affairs to the SEBI for delisting of shares, the SEBI informed that "it may be noted that since the shares are already listed and traded on the Stock Exchange, third party rights might have been created. Therefore, delisting the said shares may create hardships to investors who have bought the shares in secondary market. We are therefore, unable to accede to your request to direct Stock Exchanges to delist the shares under reference." Further SEBI has never said that the shares can be issued to fixed deposit holders in a scheme of arrangement etc. This i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the public will remain a deposit and it makes no difference if the same is accepted by a Non-Banking Finance Company or by some other company. Learned counsel for the Respondent further argued that the compromise with FD holders is outside the purview of Section 391/394 of the Companies Act, 1956, as per law laid down by the Hon'ble Supreme Court in the case of M/s Integrated Finance Co Ltd Vs Reserve Bank of India etc. Learned counsel for the Respondent further argued and stressed that the legal right available to the FD holders for filing prosecution for non-repayment of Fixed Deposit cannot be withdrawn under any Scheme. 54. We have heard the parties on the issue. We have noted that the Company intended to restructure the creditors providing different options for different classes of creditors as under:- (i) Class-I a. Term Lender (including secured, unsecured and foreign currency) b. NCD holders. c. Working Capital Lenders. d. ICDs. (ii) Class-II a. Fixed Deposit Holders. (iii)Class-III a. Vendors. (iv) Class-IV a. Preference and Equity Share Holders. Looking at the list of creditors which has been provided by the appellant the nature of which has b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng provision to Section 58A of the Companies Act, 1956 has undergone major changes and therefore the NCLT ought to have considered Section 74 of the Companies Act, 2013 before passing the impugned Order. Counsel for the Appellant further argued that the NCLT could not have passed the order without hearing SEBI especially when the same is mandate of Section 230(5) of the Companies Act, 2013. The NCLT passed the impugned order in spite of the fact that the Regulator had taken a stand that the shares once issued to the fixed deposit holders could not be reversed. 56. Learned counsel for the Respondent argued that the appellant had violated the order of Hon'ble Company Law Board by making default in repayment as per the order of CLB is sufficient to make out the violation of Section 58A of the Companies Act, 1956. There is no question of deciding a petition under the Companies Act, 2013. Learned counsel for the Respondent argued that the NCLT cannot pass an order under Section 230 of the Companies Act, 2013 while deciding an application before it under Section 391 of the Companies Act, 1956. 57. We have heard the parties on this issues. We observe that the appellant has defaulted in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... promise in respect of of such public deposits. Learned counsel for the Respondent further argued that the Hon'ble Supreme Court of India in the matter of Integrated Finance Co Ltd Vs Reserve Bank of India etc has settled the law by rejecting such a scheme. 60. We have heard the learned counsel for the parties. Deposits under Companies Act, 1956 are regulated in terms of Section 58A. It is to be particularly noted in this Section 58A, Central Government is entitled to prescribe the limits upto which, the manner in which and the conditions subject to which deposits may be invited or accepted by a company either from public or from its members in consultation with Reserve Bank of India. Further it is noted that the deposits accepted by the NBFC is regulated under Section 45QA of Reserve Bank of India Act. As RBI is regulating the deposits under Section 45QA and/or is consulted by Government of India before framing the rules under Section 58A of the Companies Act, 1956 and both the rules being almost the same it cannot be said that the similar treatment given to the deposits under Section 45QA of RBI Act and Section 58A of Companies Act, 1956 will be different merely because they are ..... X X X X Extracts X X X X X X X X Extracts X X X X
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