9911796707
TMI Blog2015 (7) TMI 1347X X X X Extracts X X X X X X X X Extracts X X X X ..... company has not proceeded with this petition within reasonable time. After a period of eight years, now the proposed scheme cannot be sanctioned in the present format and learned advocate Mr.Maulin Raval appearing for the objector is right in submitting that this scheme can be said to be a stale scheme. Hence, the same is not required to be sanctioned on this ground also. It is also clear from the record that SEBI has passed an order on 6.6.2008 which is produced by the objector at page 289 of the compilation. The said order was passed giving direction under Sections 11 and 11(B) of the SEBI Act read with Regulation 11 of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Security Market), Regulations of 2003 against the company and its directors. SEBI, by way of the said order, restrained the petitioner-company from accessing the securities market and prohibiting from buying, selling or dealing in securities directly or indirectly for a period of five years - It appears from the record that this aspect is also not stated by the petitioner-company in this petition nor it was pointed out before the respective shareholders and lenders that such proceedings are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Companies under the provisions of the Companies Act. The petitioner company was incorporated for the objects which are set out in the Memorandum and Articles of Association of the company. In paragraph 5 of the petition, the main objects of the company are stated. As per the audited balance sheet as on 31.3.2008, the authorized, issued, subscribed and paid up share capital of the petitioner-company consists of the following: SHARE CAPITAL AS ON 31/03/2008 Authorised: (Rupees In Lacs) 20,00,00,000 Equity Shares of ₹ 5/- each 10000.00 50,00,000 Preference Shares of ₹ 100/- each 5000.00 15000.00 Issued and Subscribed 6,35,55,555 Equity Shares of ₹ 5/- each 3177.78 Paid UP 6,34,68,005 shares of ₹ 5/- each fully paid Up 3173.40 Add Forfeited Shares 2.63 Total 3176.03 6,66,666 15% Cumulative Redeemable Preference shares of ₹ 100/- each fully paid up 666.67 Total 3882.70 The petitioner-company started its commercial operations somewhere in the year 1993. As per the averment made in the petition, in the year 2008, the Company owed the principal dues of ₹ 377.9 crores and further all outstanding towards interest, penalty and other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gether with copy of the aforesaid scheme and explanatory statement required under Section 393 of the Act and a form of proxy. Notice of meetings were also advertised as directed by this Court in the concerned newspapers. Meetings of different class of persons were held and as per the averment made in the petition, in all the different meetings, the scheme was approved by the statutory majority. 2.5. Thus, since the proposed composite scheme of compromise and arrangement has been duly approved by statutory requisite majority by equity shareholders, preference shareholders, class `A' lenders, class `B' lenders at the respective meetings, the petitioner-company has moved this petition for seeking sanction of the said composite scheme. 2.6. This Court passed an order on 23.9.2008 by which the petition was admitted and notice of admission was issued in the concerned newspapers. Notice to Central Government through the Regional Director, Department of Corporate Affairs was also issued in pursuance of which, learned advocate for the Regional Director remained present, filed the reply to which rejoinder is filed by the petitioner-company. One of the shareholders having more than ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e mandatory requirement of Section 391 of Companies Act of 1956. 2.12. Public notice has been issued only in Ahmedabad Edition of English daily, whereas, as per records of the petitioner-company, several persons holding substantial shares in the capital of the petitioner are located and/or residing at many places within India. Said notice is non-est in the eye of law. 2.13. Nirma Industries has not completed the requirements of takeover code and hence as per Regulation 10 of the SEBI (Substantial Acquisition of Shares and Takeover) Regulation, 1997, Nirma Industries Limited and its sister concern which hold more than 15% of the shares do not acquire any voting right. 2.14. The mandatory requirement of Section 101 of the Companies Act are required to be followed whereas the petitioner has prayed for dispensing with the same. SEBI has passed prohibitory order/direction against the directors of the petitioner-company restraining them from accessing the security market and has prohibited it from buying, selling or dealing in securities directly or indirectly for a period of five years. 2.15. That prohibitory orders passed by SEBI were not disclosed in the respective meetings of va ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e dismissed. 4.1. Learned Senior Counsel Mr.Soparkar submitted that aforesaid two objections raised by the Dy.Registrar of Companies are required to be discarded in view of the fact that petitionercompany has filed additional affidavit which is produced at page 379 of the compilation. By way of the said affidavit, the petitioner has stated that the petitioner had filed Miscellaneous Application in Case No.69 of 2006 before BIFR for deregistration of reference filed earlier on the ground that the company is not a sick company anymore. BIFR, therefore, passed an order on 16.7.2014 and held that the company has ceased to be a sick industrial company and the company is discharged from the purview of SICA/BIFR. Learned Senior Counsel has referred to the said order passed by BIFR which is produced at page 380. Thus, learned senior counsel submitted that in view of the order passed by BIFR, company is not a sick industrial unit and no application is pending before BIFR. 4.2. In response to the second objection taken by Dy.Registrar, learned counsel submitted that if the company has passed resolution under Section 391 of the Companies Act, no separate resolution is required to be passed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ffect the creditors. Yet the creditors would have no voice in the matter. If the procedure as provided in section 100 onwards has got to be carried out the court could not sanction reduction of share capital unless the creditors are heard and provision is made for the creditors who object to the reduction. However, if the reduction of share capital does not involve either diminution of liability in respect of unpaid share capital or payment to any shareholder of any paid up capital, the court can sanction the same without reference to the creditors. The creditors in such a case would not even be entitled to object to the proposed reduction as provided in section 102. In the instant case, admittedly, the reduction of share capital is by way of cancellation of share capital which is lost or is unrepresented by available assets. In such a case, creditors, even in a reduction simpliciter, are not entitled to object and it makes no difference if reduction is brought about by following the procedure prescribed in section 100 onwards or by way of a scheme of compromise and arrangement. Thus, if it can be done in a given set of circumstances as part of a scheme of compromise and arrangemen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or advocate has submitted that section 391 is a complete code in itself and once the scheme of arrangement falls squarely within the four corners of this section, it can be sanctioned, even if it involves doing acts for which the procedure is specified in the other sections of the Companies Act. It is submitted that it is now established and accepted in a number of cases by various High Courts and this court that the principle of single window clearance permits all other formal requirements of the Companies Act, such as approval of change of objects or any other alteration of the memorandum of association and all other consequential or incidental changes required for implementing the scheme, to be formalised in a single petition. It is further submitted that there is no requirement of paying registration fees and stamp duty, as the demerged company has already paid the requisite registration fees and stamp duty payable under the statute. Having once duly paid the amounts on periodic increases in share capital, further duty and charges cannot be levied when part of the same share capital becomes the share capital of the resulting company by effect of law. In support of this submissi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould result in delaying the pending proceedings for the sanction of the scheme which has been approved by the requisite statutory majority at the respective meetings of the shareholders and lenders. Baseless allegations have been made by the objector regarding the bonafides of the proposed scheme. Learned counsel submitted that the present scheme of compromise with the lenders is proposed by the petitioner-company which was not party to SAT proceedings. He then contended that the fact of previous proposals of compromise has been clearly stated both in the scheme as well as in the petition. The previous proposals of the scheme could not be approved by the lenders in the first case and could not be placed for financial consideration of the shareholders and creditors in the second case. Hence, the same were withdrawn. The terms of the compromise with the lenders in the present scheme are materially different which has been duly approved by the majority of equity and preference shareholders as well as class `A' and class `B' lenders of the company at the respective meetings. He, therefore, submitted that principle of res judicata would not be applicable to the present proceedin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o be followed under Section 100 of the Companies Act. 4.10. Learned senior counsel has placed reliance upon the decision rendered by the Hon'ble the Supreme Court in the case of Miheer H Mafatlal V/s Mafatlal Industries Limited reported in 87 CC 792 wherein the Hon'ble the Supreme Court has held as under: "However, the further question remains whether the court has jurisdiction like an appellate authority to minutely scrutinise the scheme and to arrive at an independent conclusion whether the scheme should be permitted to go through or not when the majority of the creditors or members or their respective classes have approved the scheme as required by section 391(2). On this aspect, the nature of compromise or arrangement between the company and the creditors and members has to be kept in view. It is the commercial wisdom of the parties to the scheme who have taken an informed decision about the usefulness and propriety of the scheme by supporting it by the requisite majority vote that has to be kept in view by the court. The court certainly would not act as a court of appeal and sit in judgment over the informed view of the concerned parties to the compromise as the sam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e material facts would be, upon which a party relies for his claim or defence. The material facts are facts upon which the plaintiff's cause of action or the defendant's defence depends and the facts which must be proved in order to establish the plaintiff's right to the relief claimed in the plaint or the defendant's defence in the written statement. Which particular fact is a material fact and is required to be pleaded by a party, would depend on the facts and circumstances of each case." 5. On the other hand, learned advocate Mr.Maulin Raval appearing for the objector mainly contended as under: 5.1. The proposed scheme is framed in the year 2008 and, therefore, at present it is a stale scheme and hence it will not work in the year 2015. During this period, number of things have been changed. 5.2. Against the order dated 5.6.2008 passed by SAT in Appeal No.74 of 2007 filed by Nirma Industries Limited and Nirma Chemical Works Limited, the said company has preferred SLP before the Hon'ble the Supreme Court. The Hon'ble the Supreme Court has dismissed the said SLP whereby it confirmed the order passed by SEBI and SAT. The said decision is reported in AIR 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under: "51. We see no difficulty in reconciling the need to satisfy the requirements of both Sections 391 to 394-A and Section 466 of the Companies Act while dealing with a company which has been ordered to be wound up. In other words; we find no incongruity in looking into aspects of public interest, commercial morality and the bona fide intention to revive a company while considering whether a compromise or arrangement put forward in terms of Section 391 of the Companies Act should be accepted or not. We see no conflict in applying both the provisions and in harmoniously construing them and in finding that while the court will not sit in appeal over the commercial wisdom of the shareholders of a company, it will certainly consider whether there is a genuine attempt to revive the company that has gone into liquidation and whether such revival is in public interest and conforms to commercial morality. 52. We cannot understand the decision in Miheer H.Mafatlal V.Mafatlal Industries Ltd. as standing in the way of understanding the scope of the provisions of the Act in the above manner. We are therefore satisfied that the Company Court was bound to consider whether the liquidation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore this Court cannot preclude the petitioner-company once again by filing a fresh scheme before this Court. With regard to contention of the stale scheme raised by the objector, it is submitted that only one shareholder has objected about the stale scheme. He placed reliance upon the provision of Section 392 of the Companies Act and submitted that creditors have not approached before this Court. Proviso of Section 391(2) of the Companies Act refers to the pendency of investigation proceedings in relation to the company under Section 235 to 351 of the Companies Act whereas in the present case, the inquiry was made under SEBI Act. SEBI has never prohibited the petitioner-company for transferring the shares of the company or dealing with the shareholders of the company. By way of the prohibitory order, the petitioner-company was restrained from accessing the securities market and prohibited from buying, selling or dealing in the securities directly or indirectly for a period of five years. 6.1. The reference was pending before BIFR after the matter was remanded by the appellate authority. However, by an order dated 16.7.2014, BIFR held that the company has ceased to be sick indust ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he purview of SICA/BIFR. (e) The scheme of compromise and arrangement is proposed by the petitioner-company under Section 391(1) of the Companies Act, 1956. The composite scheme is produced at Annexure `C' page 37 of the compilation. (f) This Court passed an order on 16.7.2008 whereby the petitioner-company was directed to convene separate meetings of the respective shareholders and class of lenders of the company for the purpose of approving the composite scheme of compromise and arrangement. The said meeting was held and it is the case of the petitioner that it has been approved by the statutory majority in the meeting of respective shareholders and lenders. (g) The objector has raised various objections against the approval of the composite scheme proposed by the petitioner-company. 9. From the aforesaid facts, it is clear that when the petitioner has preferred this petition in September, 2008, the reference filed by the petitioner was pending before BIFR. The same was recently disposed off by BIFR by an order dated 16.7.2014 on Miscellaneous Application moved by the petitioner-company. Thus, when the present petition was filed in September, 2008, the petitioner was n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fails to comply with `e' above, the company/investor undertake to make prepayment of DDBs on or before December 30, 2008. Such prepayment of DDBs shall be at Net Present Value considering the discounted rate @11% per annum." 12. In the composite scheme, part IV provides for Reduction and Reconstructing Of Capital. Clause III provides for capital reduction under the said head and clause B Preference Shares Scheme of reorganisation/redemption of 15% cumulative preference shares is prescribed. Class ii under the said head provides that: "(ii) xxxxx The amount so finalized as settled shall be discharged by issue of DDBs on the same terms and conditions to be issued to lenders. Company at its option will prepay on or before 3 1 s t Dec.2008 the amount of DDBs at 11% discounted rate." 13. Part VII provides for other terms and conditions applicable to the company and all the lenders. In it, clause 2(b)(c) provides as under: "b) The Company shall take all such measures as may be necessary for the purpose of effecting listing and trading of post-restructuring equity shares of the company on Bombay Stock Exchange and National Stock Exchange on or before November 30, 2008 or within ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Limited whereby the appeal filed by Nirma Industries was dismissed. The said order is produced at page 276 of the compilation. In the said order, Nirma Industries challenged the communication dated 30.4.2007 sent by SEBI to LKP shares and Securities Limited, Mumbai, Merchant bankers of Nirma informing it that request for withdrawal of the open offer made on behalf of it is not accepted. In paragraph 2 of the said order, SAT observed that Shree Rama Polysynth Pvt.Ltd., East-West Polyart Ltd. and Ideal Petroproducts Ltd. are group companies of Shree Rama MultiTech Limited (present petitioner) and these companies are stated to be target companies. In the said order, SAT observed in paragraphs 8 and 9 as under : "8. xxxxx The above facts would seem to be enough to provide the appellants a correct prognosis regarding the financial health and prospects of the target company. Clearly, the appellants decided on invoking the pledge on the shares of the target company with open eyes and sufficient knowledge about the affairs of the target company. It is not as if the appellants were innocent and were caught napping in an unexpected turn of events. We are not, therefore, inclined to accep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s the Hon'ble Supreme Court, it is clear that though the petitioner-company was not a party to the said proceedings, however, the proceedings were initiated in pursuance to the transactions with the petitioner-company. Therefore, the petitioner-company and its group companies were described as target companies. Thus, from the record it is clear that the petitioner-company has not placed aforesaid important details with regard to pendency of proceedings before SAT in the respective meetings of the shareholders as well as lenders. That the "Investor" Nirma Industries and its sister concern made a public offer in view of takeover code (Substantial Acquisition of Shares and Takeover) Regulation, 1997 and said Nirma Industries had offered ₹ 18.60 per share, Nirma thereafter applied for withdrawal of the said offer. SEBI had rejected the said application. Nirma Industries, therefore, preferred the appeal before the SAT. Thus, Mr.Raval, learned advocate for the objector is right in making the submission that if such facts would have been disclosed by the petitioner-company in the respective meetings, perhaps the respective shareholders and lenders would not have voted in favour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the Court by affidavit or otherwise, all material facts relating to the company. Here the word "material facts relating to the company" is very important. In the proviso itself, it is further stated that all material facts such as the latest financial position of the company, latest report on the accounts of the company, the pendency of any investigation proceedings in relation to the company under Section 235 to 351 and the like. I am of the opinion that the petitioner-company is required to disclose all material facts provided under the proviso and similar to such facts. Even if the investigation proceedings is not pending in relation to the company under Section 235 to 351 of the Companies Act, if any other investigation/proceedings are pending against the company, the company is required to disclose the same before the respective shareholders and lenders as well as before the Court. 18. Thus, in the present case, the petitioner-company has not disclosed all material facts relating to the company such as order passed by SEBI as well as the order passed by SAT in case of Nirma Industries Limited and, therefore, I am not inclined to exercise the powers under Section 391 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eme 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 the same. (7) That the company court has also to satisfy itself that 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 court are found to have been met, the court will have no further jurisdiction to sit in appeal over the commercial wisdom of the majority of the class of persons ..... X X X X Extracts X X X X X X X X Extracts X X X X
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