2006 (4) TMI 263 - HC - Companies Law

Summary

Issues Involved:
1. Approval of the scheme of amalgamation.
2. Validity of the arbitration award and its implementation.
3. Jurisdiction of the District Judge under section 9 of the Arbitration and Conciliation Act, 1996.
4. Right of shareholders to participate in meetings.
5. Proceedings under sections 397 and 398 of the Companies Act, 1956 before the Company Law Board.
6. Compliance with statutory provisions under sections 391 and 394 of the Companies Act, 1956.

Issue-wise Detailed Analysis:

1. Approval of the scheme of amalgamation:
The scheme proposed the amalgamation of Banaras Beads Ltd. (transferor-company) with BBL Beads Ltd. (transferee-company). The scheme was approved by a majority in the meetings convened on 6-2-1999, with 83.25% of the shareholders of the transferor-company and 100% of the transferee-company voting in favor. However, objections were raised by a significant shareholder, who was restrained from participating in the meeting.

2. Validity of the arbitration award and its implementation:
The arbitration award, given by Hon'ble Mr. Justice A.N. Gupta, directed that certain shareholders be represented by attorneys in the meeting. This award was challenged under section 34 of the Arbitration and Conciliation Act, 1996, and the challenge was rejected by the District Judge, Varanasi. The award was still under appeal (FAFO No. 809 of 1999) in the High Court.

3. Jurisdiction of the District Judge under section 9 of the Arbitration and Conciliation Act, 1996:
The District Judge, Varanasi, passed an order under section 9(d) of the Act of 1996, restraining certain shareholders from attending the meeting and allowing representation through attorneys. The court held that the District Judge did not have jurisdiction to interfere with the statutory rights of shareholders to participate in meetings convened under section 391 of the Companies Act, 1956.

4. Right of shareholders to participate in meetings:
The court emphasized that shareholders must have their voice proportionate to their share value in the meeting. The infringement of the right of shareholders under sections 87 and 176 of the Companies Act, 1956, vitiated the proceedings. The order of the District Judge restraining shareholders from attending the meeting was found to be without jurisdiction, and the shareholders were unlawfully prevented from participating.

5. Proceedings under sections 397 and 398 of the Companies Act, 1956 before the Company Law Board:
A petition under sections 397 and 398 was filed by the objecting shareholder, complaining of oppression and mismanagement. The Company Law Board had directed the parties to maintain the status quo and attempt an amicable settlement. The court noted that the agreement to submit to the jurisdiction of the Company Law Board could not indefinitely stall the proceedings under sections 391 and 394 of the Companies Act.

6. Compliance with statutory provisions under sections 391 and 394 of the Companies Act, 1956:
The court found that the meetings of the shareholders were not held in accordance with the provisions of the Companies Act. A significant group of shareholders (32.15%) was restrained by police force from entering the venue of the meeting, and their representation through attorneys using proxies was without their consent. The scheme was not approved by the statutory majority acting in a bona fide manner, and it lacked the broad or general principles inherent in any compromise or settlement.

Conclusion:
The court dismissed the confirmation petition for the scheme of amalgamation, citing the unlawful restraint of shareholders from participating in the meeting, the lack of jurisdiction of the District Judge to interfere, and the ongoing challenge to the arbitration award. The scheme did not meet the statutory requirements and was not approved by a bona fide majority.