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1999 (12) TMI 782
Issues: Challenge to arbitration award on grounds of limitation
Analysis:
The petitioner challenged an arbitration award made by the Sole Arbitrator of the National Stock Exchange of India Ltd., contending that the claim was time-barred. The respondents claimed that the cause of action arose not when the securities were sold in 1996 but after the cheques issued in June 1997 were dishonored, leading to a claim for Rs. 6,90,000 with interest. The petitioner argued that the claim was barred by the limitation period of three months from the date the claim arose, as per Regulation No. 5 of the Stock Exchange Regulations. The arbitrator, however, ruled in favor of the respondents, stating that the cause of action arose six months after the cheques were issued. The High Court analyzed the submissions and found that the cause of action indeed arose when the cheques were dishonored in July 1997, leading to demands for payment and legal actions by the respondents. The Court held that the dispute should have been referred to arbitration within three months from August 1997 when the dispute clearly emerged, and not in December 1997 as argued by the respondents. The Court further noted that the Bye-laws and Regulations of the Stock Exchange did not conflict regarding the limitation period, making Regulation No. 5 applicable. Consequently, the Court set aside the arbitration award as the claim was barred by limitation and granted the petition in favor of the petitioner.
This case highlights the importance of understanding the accrual of cause of action in arbitration disputes and the significance of adherence to limitation periods as prescribed by relevant regulations. The Court's detailed analysis emphasized that the cause of action arose when the cheques were dishonored and demands for payment were made, rather than when the securities were initially sold. By clarifying the timeline of events and legal provisions governing the limitation period, the Court determined that the arbitration award was erroneous and set it aside. The judgment underscores the critical role of accurate interpretation of regulations and timely initiation of arbitration proceedings in resolving disputes effectively within the legal framework.
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1999 (12) TMI 781
Issues:
1. Claim for return of machinery and funds invested by the applicant in a company under liquidation.
2. Validity of the applicant's claim as a shareholder or managing director.
3. Official Liquidator's role in handling seized property and assets of the company.
4. Dispute regarding the machinery and funds brought in by the applicant.
5. Legal standing of the applicant's investments and payments.
6. Jurisdiction of the court over the release of seized property and refund of investments.
Analysis:
1. The applicant sought the return of machinery and funds invested in a company under liquidation. The applicant claimed to have brought additional machinery and contributed funds for the company's revival, subject to approval by the BIFR. However, as the BIFR ordered winding up of the company, the applicant requested the return of the machinery and funds. The applicant also paid amounts to other respondents as 'upfront' payments.
2. The court analyzed the applicant's status as a shareholder or managing director. Since the BIFR did not approve the revival scheme and ordered winding up, the applicant's claim as an ex-managing director of the company in liquidation was deemed untenable. The court emphasized that the applicant's position was that of a third party, neither a shareholder nor a creditor.
3. The Official Liquidator responded by stating that the company's properties were seized after the winding-up order. The Official Liquidator requested details of the seized properties and questioned the legality of the seizure post-BIFR's winding-up order. The court clarified the Official Liquidator's role in handling the company's assets and the need for proper procedures.
4. The respondents contended that the machinery and payments made by the applicant were subject to the BIFR's approval of the revival proposal. They argued that the applicant's investments and payments were part of the company's assets under liquidation, and the machinery formed part of the company's assets with a charge over them.
5. The court addressed the legality of the applicant's investments and payments. It stated that the applicant's investments would be treated like those of an unsecured creditor, to be claimed when the company's assets are sold. The court refrained from ordering the refund of the amounts invested by the applicant or the 'upfront' payments made to other respondents.
6. Regarding the jurisdiction over the seized property and refund of investments, the court clarified that the Official Liquidator did not take possession of the seized property. The court could not order the release of property not belonging to the company. It advised the applicant to seek relief from the BIFR for the return of machinery and investments made pursuant to the BIFR's interim orders.
In conclusion, the court dismissed the application, stating that the applicant could approach the BIFR for appropriate relief regarding the machinery and investments. The court did not decide on the parties' rights, and no costs were awarded.
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1999 (12) TMI 780
Issues:
- Failure to file statement of affairs by ex-directors of a company in liquidation under section 454 of the Companies Act, 1956.
- Determining whether there was a reasonable excuse for the default in filing the statement of affairs.
- Examination of evidence and previous adjudication to establish liability for not furnishing the statement of affairs.
- Acquittal of respondents based on the presence or absence of just and reasonable excuse.
Issue 1: Failure to file statement of affairs under section 454 of the Companies Act, 1956
The Official Liquidator filed a complaint against ex-directors of a company in liquidation for not submitting the statement of affairs as required under section 454 of the Companies Act, 1956. Despite registered notices, the ex-directors failed to comply with this legal obligation, leading to the complaint.
Issue 2: Reasonable excuse for default in filing statement of affairs
The defense argued that the respondents had reasonable excuses for not filing the statement of affairs. Legal precedents were cited to support this argument, emphasizing that a valid excuse would prevent guilt under section 454 of the Act. The court referred to previous judgments where the inability to furnish the statement due to lost records or spoiled documents was considered a reasonable excuse.
Issue 3: Examination of evidence and previous adjudication
The court examined the evidence provided by the Official Liquidator and statements made by the respondents during the proceedings. It was noted that some respondents claimed no association with the company's affairs or possession of relevant documents, indicating a lack of responsibility for filing the statement of affairs. The court also referenced a prior order where only specific respondents were held accountable for handing over company assets, further supporting the argument of limited liability.
Issue 4: Acquittal based on the presence of a reasonable excuse
After a thorough analysis of the evidence and legal arguments, the court acquitted all respondents, except for two who were declared proclaimed offenders. The decision was based on the lack of evidence establishing culpability and the presence of just and reasonable excuses for not furnishing the statement of affairs. The judgment highlighted the importance of considering individual circumstances and responsibilities when determining liability under section 454 of the Companies Act, 1956.
This detailed analysis of the judgment provides a comprehensive understanding of the legal issues involved and the court's reasoning in reaching the decision to acquit the respondents.
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1999 (12) TMI 779
Issues:
Petition to quash order of Debts Recovery Tribunal and subsequent dismissal application for setting aside the order.
Analysis:
The petition under Article 226 sought to quash the order of Debts Recovery Tribunal (DRT) directing the defendants to pay a substantial sum along with interest. The plaintiff, Indian Overseas Bank, filed a suit for recovery against the defendants, alleging non-payment of credit limits availed by the defendants. The case was transferred to DRT due to the suit's value exceeding Rs. 10 lakhs. Despite multiple attempts at service, the defendants did not appear, leading to an ex parte order by DRT in favor of the plaintiff.
The defendants later moved an application to set aside the ex parte order, claiming lack of awareness about the proceedings. However, the Tribunal found that the defendants were duly served through publication and dismissed their application. The defendants challenged the legality of the orders, alleging a lack of effective service and violation of natural justice principles.
During the hearing, the defendants undertook to deposit a sum with the respondent bank, but failed to comply despite extensions. The court vacated the stay order on execution but stayed the arrest pending the writ petition's disposal. The defendants argued that the service through publication in the 'Statesman' was insufficient, as no edition was published from Agra, where they resided.
The respondent-bank contended that the defendants were intentionally avoiding service, supported by reports of failed attempts at service. The court cited precedent, emphasizing that interference with tribunal orders should avoid a technical approach. It held that the Tribunal's orders were not in violation of natural justice or jurisdiction. The court declined to examine disputed factual questions, noting the appeal process available under the Act for every order issued by the Tribunal.
Ultimately, the court dismissed the writ petition, vacated the stay order, and advised the defendants to appeal to the appellate authority under the Act. The time spent on the writ petition would be excluded from the limitation period for filing an appeal. The court's decision did not prejudice the parties' case on merits, and no costs were awarded.
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1999 (12) TMI 778
Issues Involved:
1. Irregularity in the allotment of shares.
2. Siphoning off funds of the company.
3. Irregular removal of petitioners-Directors from the Board.
4. Invalidity in the appointment of the managing director.
5. Allegations of defalcation of stock.
Summary:
1. Irregularity in the Allotment of Shares:
The petitioners alleged irregularities in the allotment of shares, claiming that shares were not issued as per their entitlement. The Commissioner noted discrepancies in share issuance but concluded that some claims were not even projected by the parties concerned. The court found no substantial ground for CLB's intervention on this issue.
2. Siphoning off Funds of the Company:
The petitioners claimed that funds were siphoned off in the form of loans and advances. The Commissioner verified that payments were made with the joint signatures of both the respondents and one of the petitioners, indicating their participation in the transactions. The court held that the respondents, having been party to the transactions, could not disown knowledge of them and thus could not maintain the application on these grounds.
3. Irregular Removal of Petitioners-Directors from the Board:
The petitioners challenged their removal from the Board, alleging it was done irregularly. The court noted that a suit was already filed regarding the resolutions passed at the annual general meeting, and the petitioners had initiated civil and criminal proceedings on similar grounds. The court found the petition to be mala fide, aimed at harassing the appellants.
4. Invalidity in the Appointment of the Managing Director:
The petitioners questioned the validity of the managing director's appointment. The court observed that the petitioners had participated in the decision-making process, and their subsequent challenge was not maintainable. The CLB's decision to appoint an Administrator was deemed unjustified.
5. Allegations of Defalcation of Stock:
The petitioners alleged defalcation of stock. The Commissioner's report revealed no significant discrepancies, noting that the physical stock of gold and silver was in excess compared to the records. The court found the allegations to be patently false and unsupported by the Commissioner's findings.
Conclusion:
The court concluded that the petitioners' actions were mala fide and aimed at harassing the appellants. The CLB's order was found untenable in law and unjustified on facts, with no proof of mismanagement or oppression established. The court set aside the CLB's order, reinstating the Board of Directors' management and directing the Administrator to hand over control immediately. The respondents were ordered to pay the costs of the appeal.
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1999 (12) TMI 774
Issues Involved:
1. Petition for winding up of the respondent company under sections 433(c) and (f) read with section 439 of the Companies Act, 1956.
2. Allegations of non-commencement and suspension of business activities by the respondent company.
3. Legal impediments faced by the respondent company in proceeding with its business objectives.
4. Compliance with statutory obligations and alleged mismanagement by the respondent company.
Issue-wise Detailed Analysis:
1. Petition for Winding up of the Respondent Company:
The petitioner, a shareholder holding 5,540 equity shares, filed a petition under sections 433(c) and (f) read with section 439 of the Companies Act, 1956, seeking the winding up of the respondent company. The petition alleged that the respondent company, incorporated as a private limited company, had failed to commence business activities and had not informed the petitioner about its progress or activities. The petitioner argued that the company had suspended its business and was not fulfilling its intended objectives.
2. Allegations of Non-commencement and Suspension of Business Activities:
The petitioner contended that the respondent company had not started any business activity since its inception and had failed to issue share certificates and notices for annual general meetings. The petitioner issued multiple notices to the company, which either went unanswered or provided insufficient responses. The petitioner argued that the company had effectively suspended its business and was only incurring nominal expenditure without undertaking any significant activities.
3. Legal Impediments Faced by the Respondent Company:
The respondent company, in its counter, admitted its incorporation and outlined the legal challenges it faced in proceeding with its business objectives. The company had acquired land for constructing a five-star hotel but faced delays due to the need for government approvals and exemptions under the Urban Land Ceiling Act. The respondent company detailed its efforts to obtain necessary permissions and financial assistance, which were hindered by changes in land use regulations and legal disputes. The company argued that the suspension of its business was due to these legal impediments and not due to any lack of intention to carry on business.
4. Compliance with Statutory Obligations and Alleged Mismanagement:
The respondent company asserted that it had complied with statutory obligations, including filing audited reports for the years 1996-97 and 1997-98. The company argued that there was no mismanagement or allegations of such by the petitioner. The company maintained that the suspension of business was unintentional and due to circumstances beyond its control. The respondent company cited several legal precedents to support its position that mere non-commencement or suspension of business, without evidence of mismanagement or lack of intention to carry on business, was insufficient grounds for winding up.
Judgment:
The court, after considering the arguments and evidence presented, found no merit in the petitioner's claims. The court noted that the respondent company had made efforts to proceed with its business objectives but faced unforeseen legal challenges. The court emphasized that the suspension of business was not intentional and that the company had complied with statutory obligations. The court referred to legal precedents indicating that non-commencement or suspension of business alone is not sufficient for winding up unless there is evidence of mismanagement or lack of intention to carry on business. Consequently, the petition for winding up was dismissed at the stage of admission, with no costs awarded.
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1999 (12) TMI 771
Whether the complaint for the offence punishable under section 113(2) of the Companies Act, 1956, could be filed only where the registered office of the company is situated or where the complainant is residing?
Held that:- Appeal dismissed. Section 113, which, inter alia, provides that the company shall deliver the documents, such as, certificates of shares, debentures and certificates of debenture stocks allotted or transferred in accordance with the procedure laid down in section 53. Section 53 prescribes the mode of delivery, inter alia, by sending the document by post at registered address and sub-section (2) is the deeming provision for delivery of such letter. Thus the conclusion that the cause of action would arise at the place where registered office of the company is situated.
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1999 (12) TMI 770
Whether the provisions of Consumer Protection Act, 1986 can be invoked against the Provident Fund Commissioner by a member of the Employees Provident Fund Scheme?
Held that:- Appeal dismissed. We cannot accept the argument that the Regional Provident Fund Commissioner, being Central Government, cannot be held to be rendering ‘service’ within the meaning and scheme of the Act. A perusal of the scheme clearly and unambiguously indicate that it is a ‘service’ within the meaning of section 2(1)(o) and the member a ‘consumer’ within the meaning of section 2(1)(d). It is, therefore, without any substance to urge that the services under the scheme are rendered free of charge and, therefore, the scheme is not a ‘service’ under the Act. Both the State as well as National Commission have dealt with this aspect in detail and rightly came to the conclusion that the Act was applicable in the case of the scheme on the ground that its member was a ‘consumer’ under section 2(1)(d) and the scheme was a ‘service’ under section 2(1)(o).
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1999 (12) TMI 769
Issues Involved:
1. Petition for writ of mandamus.
2. Financial distress and non-repayment of deposits.
3. Interim orders and schedule of payments.
4. Non-compliance with court orders.
5. Details of company assets and properties.
6. Criminal complaints and investigations.
7. Role of Reserve Bank of India.
8. Judicial remedies and directions.
Issue-wise Detailed Analysis:
1. Petition for Writ of Mandamus:
The petitioners sought a writ of mandamus directing the respondents to conduct an enquiry before registering any crime against them upon receiving complaints. The first petitioner, a doctorate in engineering and Managing Director of Midwest India Industries Ltd., claimed harassment by depositors due to the company's financial troubles and inability to repay deposits.
2. Financial Distress and Non-repayment of Deposits:
The company faced financial difficulties due to revised RBI guidelines in 1997, leading to heavy losses and inability to repay deposits to around 12,000 depositors. This resulted in numerous complaints and legal actions against the company and its Managing Director.
3. Interim Orders and Schedule of Payments:
On 8-2-1999, the court issued interim orders for a phased repayment schedule, requiring the company to repay matured deposits from 1996, 1997, and 1998 by specific dates in 1999 and 2000. Advocate-Commissioners were appointed to oversee the process, with specific instructions for deposit and payment schedules.
4. Non-compliance with Court Orders:
The petitioners failed to comply with the court's directions, including depositing required amounts, furnishing bank guarantees, and providing details of movable and immovable properties. This led to contempt proceedings and further reports from the Advocate-Commissioners highlighting non-compliance.
5. Details of Company Assets and Properties:
The court identified several properties owned by the company and its directors, including agricultural lands, UTI units, shares, and real estate. The petitioners' failure to deposit amounts and provide necessary documentation led to the court taking possession of certain properties and freezing bank accounts.
6. Criminal Complaints and Investigations:
Multiple criminal cases were registered against the petitioners for cheating and non-refund of deposits. The court noted the involvement of family members in the company's operations and the acquisition of assets using depositors' funds. The court directed the CBCID to investigate and prosecute the petitioners and other responsible individuals.
7. Role of Reserve Bank of India:
The RBI refused to grant a registration certificate to the company due to numerous defaults and violations of the RBI Act. A special audit revealed significant liabilities and overdue deposits, leading the RBI to issue public warnings against depositing with the company.
8. Judicial Remedies and Directions:
The court emphasized the need for substantial justice for the depositors, who were defrauded by the company. The court issued comprehensive directions, including:
- Constituting a separate cell in the DGP's office to handle non-banking financial institutions.
- Immediate investigation and prosecution by the CBCID.
- RBI to initiate winding-up proceedings.
- Seizure and safekeeping of company properties.
- Revocation of personal protection and arrest of the Managing Director.
- Consideration of establishing a separate court for non-banking financial institution fraud cases.
- Remuneration for the Depositors' Association and Advocate-Commissioners for their efforts.
Conclusion:
The court's judgment aimed to protect the interests of the depositors and ensure accountability for the petitioners' fraudulent actions. The detailed directions covered various aspects, from criminal prosecution to asset seizure, to provide a comprehensive remedy for the affected depositors.
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1999 (12) TMI 768
Issues Involved:
1. Whether the transferor company lost its identity and corporate character after its amalgamation with the transferee company under the scheme sanctioned by the BIFR.
2. Whether the petitioner stood discharged of its obligation under the agreement to buy back the shareholding of the Corporation upon the transferor company being amalgamated with the transferee company.
3. Whether the arbitration clause 32 of the agreement continued to be operative even after the amalgamation of the transferor company with the transferee company.
4. Whether recourse to section 3 of the U.P. Public Moneys (Recovery of Dues) Act, 1972 was permissible in respect of the price of the entire shareholdings of the Corporation in Flowmore Polyester Ltd.
Issue-wise Detailed Analysis:
1. Identity and Corporate Character Post-Amalgamation:
The petitioner argued that the transferor company lost its identity after its amalgamation with the transferee company was sanctioned by the BIFR. The respondent contended that a company could only lose its corporate character through an order of winding up or dissolution under the Companies Act, 1956. The court noted that a company could be dissolved without winding up, as seen in amalgamations under section 394(1)(iv) of the Companies Act, 1956, and section 18 of the Sick Industrial Companies (Special Provisions) Act, 1985. The court concluded that the transferor company lost its juristic personality and was dissolved upon amalgamation, as stipulated in the sanctioned scheme.
2. Discharge of Obligation to Buy Back Shares:
The petitioner claimed discharge from the obligation to buy back shares due to the doctrine of frustration, as the transferor company was amalgamated with the transferee company. The court agreed, stating that the petitioner's obligation to purchase shares was discharged from the transfer date of the amalgamation. The court emphasized that the sanctioned scheme of amalgamation governed the rights and liabilities of the parties post-amalgamation, and the petitioner was not obligated to buy back the shares allotted to the Corporation by the transferee company.
3. Operability of Arbitration Clause Post-Amalgamation:
The court examined whether the arbitration clause in the agreement remained operative after the amalgamation. It referenced several Supreme Court decisions, concluding that an arbitration clause is a collateral term of a contract and perishes with the contract if the contract itself becomes impossible to perform. The court held that the arbitration clause could not be invoked for obligations arising after the transfer date but could be invoked for any rights or liabilities incurred before the effective date of the amalgamation.
4. Recourse to U.P. Public Moneys (Recovery of Dues) Act, 1972:
The court analyzed whether the recovery of dues under the agreement could be pursued under the U.P. Public Moneys (Recovery of Dues) Act, 1972. It noted that clause 7(f) of the agreement allowed for the recovery of losses and damages as arrears of land revenue. The court concluded that the Act could be invoked for recovering losses and damages incurred due to a breach of contract before the petitioner's discharge by the doctrine of frustration.
Judgment:
The court allowed the petition, quashing the impugned recovery certificate and consequential recovery proceedings, subject to the observations made in the judgment. The court clarified that this decision was without prejudice to the Corporation's rights acquired due to any breach of contract occurring before the transfer date. Each party was ordered to bear its own costs.
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1999 (12) TMI 767
Issues:
1. Grant of leave to continue proceedings in Debt Recovery Tribunal.
2. Validity of the order allowing the secured creditor to proceed against mortgaged properties.
3. Requirement of seeking court permission for secured creditor to stay outside liquidation process.
4. Applicability of legal principles post-introduction of sections 529 and 529A in the Companies Act, 1956.
5. Authority of the official liquidator in the disposal of assets.
Analysis:
1. The judgment revolves around the grant of leave to the first respondent, a secured creditor, to continue proceedings in O.A. No. 1301 of 1997 before the Debt Recovery Tribunal. The single judge allowed the application, with prescribed terms to inform the official liquidator and ensure payment of workmen's dues before property sale.
2. The appellants, including the managing director and directors, challenged the order, arguing that the properties were already sold, and the bank should have sought permission before liquidation. The court noted the pending petition to set aside the sale and deemed the question of property availability premature.
3. The appellants contended that the bank should have sought court permission before the winding-up order. The court rejected this, stating Section 446 does not impose such a limitation, questioning the necessity for prior permission before liquidation.
4. The judgment addresses the legal principles post-introduction of sections 529 and 529A in the Companies Act, 1956. The appellants argued that the official liquidator holds exclusive rights over assets post-winding up, requiring creditor reference for property sale. The court disagreed, citing a Karnataka High Court decision and focusing on the current application's scope.
5. The court emphasized that the decision pertained to permitting the bank to continue proceedings, not property sale. It highlighted the judge's safeguards to prevent unauthorized sales and ensure workmen's dues payment. The court noted that objections to debt recovery modalities should come from other creditors or the official liquidator, dismissing the appeal at the admission stage.
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1999 (12) TMI 765
Issues Involved:
1. Quashing the order of the Board for Industrial & Financial Reconstruction recommending winding up of U.P. State Cement Corporation Ltd.
2. Mandamus against the State of Uttar Pradesh to contribute funds for the revival of the Corporation.
3. Examination of whether the Board performed its duty under the Sick Industrial Companies (Special Provisions) Act, 1985.
4. Consideration of surplus assets for the revival of the Corporation.
5. Publication of the scheme under Section 18(3)(a) of the Act.
6. Appropriation of funds and the role of the State Government.
7. Rights of workers and their involvement in the revival scheme.
8. Just and equitable grounds for winding up the Corporation.
9. Payment of wages to workers till the winding-up order.
Detailed Analysis:
1. Quashing the Order of the Board:
The petitioners sought to quash the order dated 2-7-1997 of the Board recommending the winding up of U.P. State Cement Corporation Ltd. and the appellate authority's order dated 19-2-1998, dismissing the appeal against the said order. The Corporation was declared a sick industrial company by the Board on 7-10-1992, and multiple meetings were held to explore revival possibilities, but no viable scheme was found.
2. Mandamus Against State of Uttar Pradesh:
The petitioners sought a mandamus against the State of Uttar Pradesh to contribute the required funds for the revival of the Corporation and to make payments of all dues to the employees. The State Government consistently indicated its inability to invest funds for the Corporation's revival and suggested privatization as the only feasible option.
3. Board's Duty Under the Act:
The Board, upon receiving the reference from the Corporation, declared it a sick industrial company and appointed IDBI as the operating agency. The Board held several meetings and directed the operating agency to prepare a suitable scheme, but no viable proposals were received. The Board's efforts to revive the Corporation were consistent with the provisions of the Act.
4. Surplus Assets for Revival:
The petitioners argued that surplus assets could generate funds for the Corporation's revival. The Board directed the operating agency to identify and dispose of surplus assets. Various reports estimated the value of surplus assets differently, but the petitioners' claim of Rs. 151 crores was not substantiated. The assets were either encumbered or insufficient to cover the revival costs.
5. Publication of the Scheme:
The petitioners contended that the Board failed to publish the scheme as required under Section 18(3)(a). The Board did not publish the scheme because the proposals did not have the means of finance fully tied up. Regulation 28 requires the preparation of a draft scheme before publication, which was not feasible in this case.
6. Appropriation of Funds and State Government's Role:
The State Government did not express consent to the proposed schemes, and the deeming provision under Section 19(2) did not apply due to the State's clear stance against funding the revival. The Board's conclusion that the Corporation could not be revived without State funds was justified.
7. Rights of Workers:
The workers had the right to submit a rehabilitation scheme and were given opportunities to do so. However, no viable scheme was presented by the workers. The workers' involvement was acknowledged, but their proposals were not feasible for revival.
8. Just and Equitable Grounds for Winding Up:
The Board examined all aspects and concluded that it was just and equitable to wind up the Corporation due to its continuous losses and the lack of viable revival schemes. The Court found no grounds to set aside the Board's opinion.
9. Payment of Wages to Workers:
The Court directed that workers should be paid their dues till the winding-up order is passed. If the Corporation is wound up, workers' dues should be prioritized as per Section 529A of the Companies Act, 1956.
Conclusion:
The writ petition was dismissed against the recommendation of the Board and the order of the appellate authority. The mandamus for payment of dues to workers was allowed, ensuring their wages till the date of the order. The petition was dismissed regarding other reliefs claimed.
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1999 (12) TMI 764
Issues Involved:
1. Sanction of the Scheme of Arrangement u/s 391 to 394 of the Companies Act, 1956.
2. Compliance with statutory provisions and procedural requirements.
3. Validity of objections raised by shareholders and creditors.
4. Adequacy of disclosures and valuation of assets.
5. Impact on employees and public interest.
Summary:
1. Sanction of the Scheme of Arrangement u/s 391 to 394 of the Companies Act, 1956:
The petition sought the High Court's sanction for a scheme of arrangement under sections 391 to 394 of the Companies Act, 1956, for transferring the International Software Division (ISD) of Blue Star Limited (BSL) to Blue Star Infotech Limited (BSIL). The scheme was overwhelmingly approved by 89.7% of the shareholders in number and 99.8% in value.
2. Compliance with Statutory Provisions and Procedural Requirements:
The court noted that the procedure prescribed under the Act had been followed. The scheme had been approved by an overwhelming majority of shareholders, and the financial institutions had also given their approval. The court rejected the argument that creditors cannot oppose the scheme if they are secured, stating that creditors have the right to oppose the scheme in court.
3. Validity of Objections Raised by Shareholders and Creditors:
The objections raised by the employee shareholders and creditors were considered. The court held that the objectors had locus standi to object but found their objections unsubstantiated. The court emphasized that the principle of corporate democracy must be upheld unless the scheme is found to be fraudulent or mala fide.
4. Adequacy of Disclosures and Valuation of Assets:
The court addressed the objections regarding non-disclosure of information and undervaluation of assets. It was noted that the valuation was done by a renowned firm of Chartered Accountants and was approved by the financial institutions. The court found no merit in the argument that the valuation was unfair or that material facts were not disclosed to the shareholders.
5. Impact on Employees and Public Interest:
The court considered the impact on employees and public interest, noting that the scheme provided for the transfer of employees to BSIL without interruption in their service conditions. The court found that the scheme did not adversely affect the employees or public interest and that hypothetical future adverse events could not be considered while sanctioning the scheme.
Conclusion:
The court concluded that the scheme of arrangement was fair and reasonable, complied with the statutory provisions, and was overwhelmingly approved by the shareholders. The objections raised were found to be without merit, and the petition was made absolute in terms of the prayer clauses (a) to (g). The request for a stay of the order was rejected.
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1999 (12) TMI 760
Whether a notification issued under section 3-A negatived an exemption granted by an earlier notification under section 4 of the Act?
Held that:- Appeal filed by the sales tax authorities dismissed. Learned counsel for the State Government is unable to tell us whether there is or is not such notification. The High Court had decided as far back as in 1994 that the cotton belting made by the assessee was covered by section 14 of the Central Act. Since then, and certainly after the assessee filed the special leave petition in this Court in 1996, this aspect was, or ought to have been, before the sales tax authorities. If there is no answer in this regard to date, it must be presumed that there is no such notification. Consequently, no tax can be levied and the order under appeal to the extent that it states that the turnover of the assessee's cotton belting is taxable at the rate of four per cent, must be set aside.
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1999 (12) TMI 757
Issues:
Petition to quash order summoning documents from the bank in a case involving non-payment of declared dividends by a company.
Analysis:
The case involved a petition under section 48 of the Code of Criminal Procedure seeking to quash an order passed by the Special Judge for Economic Offences. The complainant, a shareholder in a company, alleged non-payment of dividends for two accounting years despite declarations. The complainant filed petitions to summon documents and the bank manager to establish the case. The petitioners argued the documents were irrelevant, leading to a roving enquiry. The respondent contended that proving non-despatch of dividend amounts required examining bank documents and the branch manager.
The judgment delved into relevant sections of the Companies Act. Section 205 mandates dividends be paid from profits of the company for the year, with procedures outlined. Section 205A deals with unpaid dividends, requiring transfer to a special account and payment of interest for defaults. Failure to comply attracts fines. Section 205B allows claiming dividends even after transfer to the government account. Section 205(3) specifies dividends to be payable in cash, which includes payment by cheque or warrant.
Section 207 stipulates penalties if dividends are declared but not paid within 42 days. The court highlighted that companies must pay dividends within the stipulated period or despatch instruments to shareholders. Failure to do so makes the company and responsible persons liable for punishment. The judgment emphasized the importance of proving actual payment through company records, absolving liability if unpaid amounts are transferred to the special account.
The burden of proof lies with the company to show compliance with dividend payment procedures. The court noted that the complainant's attempt to summon bank documents was unnecessary, as proving negative facts was not their obligation. Even if the company did not open a special account at the mentioned bank, it could have done so elsewhere. The judgment concluded that summoning bank documents would be irrelevant and futile in establishing guilt.
In conclusion, the criminal petition was allowed, quashing the order to summon documents from the bank. The judgment clarified the legal obligations regarding dividend payments and the burden of proof on companies to demonstrate compliance with statutory requirements.
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1999 (12) TMI 755
Issues Involved:
1. Validity of the Government Order G.O.Ms.No.190 dated 11-12-1997.
2. Entitlement of the petitioner-company to concessional electricity tariff.
3. Effective date for the commencement of the concessional period.
4. Compliance with principles of natural justice.
Detailed Analysis:
1. Validity of the Government Order G.O.Ms.No.190 dated 11-12-1997:
The petitioner-company and its workers challenged the Government Order G.O.Ms.No.190, which withdrew the concessional electricity tariff granted earlier. The respondents argued that the concession caused financial losses to the Tamil Nadu Electricity Board (TNEB). The court observed that the Government Order was passed without giving the petitioner-company an opportunity to be heard, violating principles of natural justice. The court emphasized that any order involving civil consequences must be preceded by a notice and an opportunity to respond. Consequently, the impugned Government Order was set aside.
2. Entitlement of the Petitioner-Company to Concessional Electricity Tariff:
The petitioner-company was granted a concessional electricity tariff of Re. 1 per KWH for four years as part of a revival package to prevent unemployment and revive the only aluminium manufacturing unit in Tamil Nadu. Despite the company's improved financial status, the court held that the petitioner-company was entitled to continue availing the concessional tariff until the end of the stipulated four-year period, unless validly withdrawn with due process.
3. Effective Date for the Commencement of the Concessional Period:
The core dispute was the commencement date for the four-year concessional period. The petitioner argued that the period should start from the date of production resumption on 21-2-1995, while the respondents contended it started from the date of the Government Order on 28-4-1992. The court noted that the concessional tariff was meant to support the company during its operational phase, not when it was non-functional. The court concluded that the four-year period should commence from the date of production resumption, aligning with the intent behind the concession.
4. Compliance with Principles of Natural Justice:
The court highlighted the necessity of adhering to principles of natural justice, especially when withdrawing previously granted concessions. The petitioner-company was not given an opportunity to present its case before the concessions were withdrawn, rendering the Government Order procedurally flawed. The court cited the Supreme Court's ruling in S.K. Bhargava v. Collector, emphasizing that any determination involving civil consequences must follow due process, including notice and hearing.
Conclusion:
The court allowed the writ petitions, setting aside the impugned Government Order for failing to adhere to principles of natural justice and misinterpreting the commencement date for the concessional period. The petitioner-company was entitled to the concessional tariff from the date of production resumption, and any future withdrawal of concessions must follow due process. The court also directed the refund of amounts paid by the petitioner-company under interim orders, after adjusting dues payable to the TNEB.
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1999 (12) TMI 754
Issues Involved:
1. Sanction of Scheme of Amalgamation.
2. Compliance with statutory requirements.
3. Valuation and exchange ratio of shares.
4. Objections by shareholders.
5. Financial condition and management of transferee-company.
6. Interests of creditors and employees.
7. Public policy considerations.
Issue-wise Detailed Analysis:
1. Sanction of Scheme of Amalgamation:
The petitions sought the sanction of the Scheme of Amalgamation of Arvind Intex Ltd. (AIL), Arvind Polycot Ltd. (APL), and Arvind Cotspin Ltd. (ACL) with Arvind Products Ltd. (APRL) effective from 1-10-1998. The scheme was placed pursuant to Sections 391 to 394 of the Companies Act, 1956. The scheme included the reorganization of capital and the exchange ratio for shareholders. The scheme was conditional upon various approvals and consents, including those from the Reserve Bank of India and other governmental authorities.
2. Compliance with Statutory Requirements:
The scheme was approved by the requisite majority of shareholders and creditors as required under the Act. The Official Liquidator submitted reports confirming that the affairs of the transferor companies were not conducted prejudicially to the interest of members or public interest. The Central Government, through the Registrar of Companies, suggested that the matter be decided by the Court on its merits.
3. Valuation and Exchange Ratio of Shares:
The exchange ratio was determined as follows: 4 equity shares of APRL for every 7 equity shares of AIL, 1 equity share of APRL for every 1 equity share of APL, and 5 equity shares of APRL for every 7 equity shares of ACL. The valuation was conducted by renowned Chartered Accountants Bansi Mehta & Co. and C.C. Chokshi & Co., who considered various factors including book values, market values, and projected profitability. The Court emphasized that the valuation should be fair and reasonable and conducted by independent experts.
4. Objections by Shareholders:
Three objectors challenged the scheme. One objector claimed non-receipt of notice for the shareholders' meeting and lack of disclosure of material facts. Another objector, represented by an advocate, raised concerns about the fairness of the exchange ratio and alleged collusion in the valuation process. The Court found that the objections were not substantiated by any counter-valuation report or evidence of fraud. The scheme was overwhelmingly approved by the shareholders, and the Court held that it was not its role to interfere with the commercial decisions of the shareholders unless there was manifest unfairness or fraud.
5. Financial Condition and Management of Transferee-Company:
The transferee-company APRL was used as a shell company for the amalgamation. The Court noted that the capital of APRL would be restructured post-merger. The objections regarding the financial condition of APRL were dismissed as the amalgamation aimed to integrate business operations and reduce inter-company transactions, ultimately benefiting the shareholders.
6. Interests of Creditors and Employees:
The scheme ensured that the interests of creditors and employees were protected. All employees of the transferor companies would become employees of the transferee-company without any break or interruption in service. The Official Liquidator and Chartered Accountants did not raise any adverse suggestions regarding the scheme.
7. Public Policy Considerations:
The Court found that the scheme was not violative of any provisions of law or contrary to public policy. The amalgamation was expected to strengthen the financial position of the companies and improve their market competitiveness. The scheme was considered beneficial for the shareholders, creditors, workers, and the concerned industry.
Conclusion:
The Court sanctioned the scheme of amalgamation, subject to the modification that instead of 13.5% redeemable preference shares, 10% redeemable preference shares would be allotted to the existing shareholders of APRL. The objections raised by the shareholders were dismissed, and the scheme was found to be fair, reasonable, and in the interest of all stakeholders. The Court directed the petitioners to file copies of the order with the Registrar of Companies within 30 days, and the transferor companies were to be dissolved upon filing. The petitioners were also directed to pay costs to the objectors and the Central Government's counsel.
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1999 (12) TMI 751
Issues Involved:
1. Review of the Court's order dated 23-9-1997 sanctioning the Scheme of Compromise and/or arrangement.
2. Non-compliance with mandatory provisions of sections 391 and 394 of the Companies Act, 1956.
3. Non-issuance of notice to secured creditors, unsecured creditors, and shareholders.
4. Breach of the mandatory provisions of rule 80 of the Company Court Rules.
5. Delay in filing the review applications.
6. Inherent powers of the Court under rule 9 of the Company Court Rules.
7. Merits of the scheme and the role of the Court in sanctioning the scheme.
Detailed Analysis:
1. Review of the Court's order dated 23-9-1997:
The applicants sought a review of the Court's order dated 23-9-1997, which sanctioned the scheme proposed by the Engineering Majoor Sangh under sections 391 and 394 of the Companies Act, 1956. The Court segregated the consideration of the first prayer for review from the second prayer regarding action against Mr. K.W. Desai.
2. Non-compliance with mandatory provisions of sections 391 and 394 of the Companies Act, 1956:
The scheme was presented under section 391(1), read with section 394. The Court highlighted that the scheme affected various classes of creditors and shareholders, and separate meetings for each class were mandatory under section 391(1). The Union confined its request to convene a meeting of only the workers, thus failing to comply with the statutory requirements.
3. Non-issuance of notice to secured creditors, unsecured creditors, and shareholders:
The applicants argued that no meetings of secured creditors, unsecured creditors, or shareholders were convened, nor were they given any notice of the Company Petition No. 224 of 1996. The Court found this to be a breach of the mandatory provisions, as the scheme affected these parties, and they were entitled to be heard.
4. Breach of the mandatory provisions of rule 80 of the Company Court Rules:
Rule 80 mandates that notice of the hearing of the petition must be advertised. The Court noted that no such notice was published, which deprived the affected parties of the opportunity to oppose the scheme. This non-compliance with rule 80 was a significant error.
5. Delay in filing the review applications:
The Court addressed the preliminary objection regarding the delay in filing the review applications. It observed that the order was passed without issuing any notice, and the affected parties could not have known about it immediately. The applications were filed within a reasonable time after the parties became aware of the order.
6. Inherent powers of the Court under rule 9 of the Company Court Rules:
The Union argued that the Court had inherent powers under rule 9 to sanction the scheme without issuing notice. However, the Court clarified that rule 9 does not override the mandatory provisions of section 391. The inherent powers cannot be exercised in derogation of express statutory provisions.
7. Merits of the scheme and the role of the Court in sanctioning the scheme:
The Court emphasized that its role is not to evaluate the merits of the scheme but to ensure compliance with statutory procedures. The scheme must be approved by the affected classes of creditors and members. Since the mandatory provisions were not followed, the order dated 23-9-1997 was vitiated by errors of law.
Conclusion:
The Court recalled the order dated 23-9-1997 in Company Petition No. 224 of 1996 due to non-compliance with sections 391 and 394 and rule 80 of the Company Court Rules. The Company Petition No. 224 of 1996 was dismissed. The issue of whether any action should be taken against Mr. K.W. Desai and the question of costs were deferred to the next hearing. The Court observed that Mr. K.W. Desai wasted judicial time by persisting with untenable arguments.
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1999 (12) TMI 741
Rate at which watery coconuts can be taxed under the Bengal Finance (Sales Tax) Act
Held that:- Appeal allowed. The Assistant Commissioner held that the watery coconuts should attract tax at the rate of 4 per cent and the respondent-sales tax authorities did not challenge his order. It was, therefore, incompetent for the Tribunal in the appellants' revision petition to set aside that order and direct that the appellants' watery coconuts should be taxed at the rate of 8 per cent.
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1999 (12) TMI 714
The Supreme Court interpreted rule 3(66a) of the Bengal Sales Tax Rules, 1941. The court held that serially numbered cash/credit memos for sales of goods manufactured by the assessee did not need to be issued for a whole year, but could be issued monthly. The court allowed the appeal and set aside the previous order, granting the appellant the benefit.
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