TMI Blog2003 (9) TMI 536X X X X Extracts X X X X X X X X Extracts X X X X ..... l in tyres and tubes of every description for all types of vehicles and other business as mentioned in the memorandum of association. The authorised share capital of the petitioner is Rs. 40 crores and Rs. 5,00,000-00 14% redeemable cumulative preference shares of Rs. 100 each of the total value of Rs. 5,00,00,000. The issue subscribed and paid up share capital is Rs. 25,63,44,870 of 2,56,34,487 equity shares of Rs. 10-00 each fully paid up. 3. The petitioner with its present capacity of 13.8 lakh tyres per annum remains the smallest tyre company in the country. Therefore it would be difficult for the petitioner to raise further resources to fund any further capacity expansion in view of its unfavourable debt equity ratio with the result the operations of the petitioner are becoming uncompetitive and unviable on a stand alone basis. The transferee-company had acquired controlling interest in the petitioner-company in 1997 by acquiring 52% of its capital. Thereafter, a major modernisation scheme at substantial investment was implemented. Therefore, it was considered necessary for the petitioner to amalgamate with its holding company i.e., transferee- company which is one of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ucturing would enable focused business approach for the maximisation of benefits to all stake holders and opportunity for future consolidation. The scheme proposed is produced along with the petition as per Annexure-A1 to this petition. 5. The petitioner made an application under section 391 of the Companies Act in Company Application No. 58/2003 seeking permission of the court to convene a meeting of shareholders, secured creditors and unsecured creditors to consider and if thought fit to approve the scheme of arrangement and amalgamation. This Court by order dated 23rd January, 2003 permitted the meeting and directed the petitioner to hold meeting on 17th March, 2003 with usual directions. Accordingly, notices of the meeting together with the copy of the scheme, explanatory statement under section 393 of the Companies Act, proxy form and attendance slip were served individually on all the equity shareholders, secured creditors and unsecured creditors of the petitioner-company. Notice of the meeting was also advertised in the New Indian Express, Bangalore, and Vijaya Karnataka, Bangalore, on 8th and 9th February, 2003 respectively. Accordingly, the meeting was convened by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... panies Act, 1956. 6. Thereafter the petitioner has filed the present petition for sanctioning of the scheme. On 17-4-2003 the petition was admitted. Notice was issued to the Official Liquidator as well as to the Regional Director of Department of Company Affairs, Chennai, and the petitioner was directed to take out publication in one edition of the Indian Express and one edition of Vijaya Karnataka, fixing the hearing date as 29-5-2003. Accordingly, notice was published in the said dailies. Notice was also served on the Official Liquidator as well as the Regional Director. The Official Liquidator has filed OLR No. 181/2003 seeking appointment of a Chartered Accountant for scrutiny of books and papers of the petitioner. Accordingly, one Sri B.S. Ravikumar Associates, Chartered Accountant was appointed by this court on 29-5-2003. 7. The said Chartered Accountant has filed detailed report stating that the petitioner has maintained books of account and papers as defined in the Companies Act and that the affairs of the petitioner has been conducted in a manner not prejudicial to the interest of its members or public. 8. The Registrar of Companies has filed an affidavit stati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hey have not maintained books correctly, the scheme should not be sanctioned by this court. 10. There is yet another objection from the company by name Techno- export Foreign Trade Company Ltd. They contend that they are creditors within the meaning of section 391 of the Act and has an award dated 20-3-2000 and the corrigendum dated 23-5-2000 passed by the Arbitration Court attached to the Economic Chamber of Czech Republic and Agricultural Chamber of Czech Republic in their favour. The said award is binding on the petitioner for all purposes as the same has not been set aside. Though the petitioner has challenged the said award under section 34 of the Act the same came to be dismissed by the Principal District Judge, Mysore, as not maintainable. However, petition under section 48 is pending consideration. In the balance-sheet of the petitioner-company a part of the claim of the objector has been shown and in spite of the same, the petitioner has failed to issue notice to the objector with regard to the meeting of the creditors and therefore they contend, unless the decree is fully satisfied by the petitioner-company, the scheme of amalgamation should not be sanctioned by this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e passed on 8-3-2000. The petitioner filed Arbitration Case No. 4/2000 on the file of District Judge, Mysore, for setting aside the ex parte award. The said case came to be dismissed on 13-6-2001 on preliminary issue. The said order was challenged before this court in C.R.P. No. 2492/2001 which came to be allowed and the matter was remanded to the District Court. Again the District Judge has passed an order holding that the petition under section 34 is not maintainable, but however, it is maintainable under section 48 of the Arbitration and Consolidation Act, 1996. In spite of the restraint order passed in these proceedings he has filed Execution Petition No. 48/ 2002 and the learned District Judge has passed an order on 13-12-2002 holding that the objector herein is not entitled to proceed with the execution petition during the subsistence of temporary injunction order passed in R.F.A. No. 152/2000. Therefore they submit, in the event of the objector succeeding in establishing that it is a creditor, the scheme of arrangement and amalgamation provides for full protection of the interest of the creditors by virtue of clause 9.4 of the said scheme, which clearly spells out that all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id objector is also taken care of. 15. Per contra, learned counsel appearing for Rawel Singh submitted, though Rs. 25 lakhs has already been deposited in Delhi High Court, and if proper provision is made for payment of the balance amount he would not have any objection as he is only interested in securing the amount which is lawfully due to him. If court protects his interest to that extent by issuing appropriate direction in the order the said objector cannot have any grievance. 16. The learned counsel appearing or Technoexport Foreign Trade Company submitted, when the company has not been issued with statutory notice as required under sections 391 and 394 of the Act, the meeting convened and the resolutions passed in the meeting are all vitiated and therefore this court cannot take note of report submitted by the Chairman stating that the scheme of amalgamation has been approved by the requisite majority of the shareholders, creditors and unsecured creditors and therefore the petition filed is to be dismissed. Secondly, it was contended, as the amount due is under an award passed, the interest of the unsecured creditors has to be protected by this court by issuing appro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the company, the latest auditors report on the accounts of the company, the pendency of any investigation proceedings in relation to the company under sections 235 to 251, and the like." A reading of the aforesaid section makes it very clear that a compromise or arrangement is proposed between a company and its creditors between company and its members, court may on the application of the company or of any creditor or member of the company order a meeting of the creditors or class of creditors or all the members or class of members as the case may be to be called and conduct in such manner as the court directs. It is thereafter the company shall send a notice calling the meeting to a creditor or member and the said notice shall be accompanied by a statement setting forth the terms of the compromise or arrangement and explaining its effect. Such notice also should mention the place at which and manner in which creditors or members entitle to attend the meeting on obtaining copies of the statement aforesaid. Such notice is also issued through publication in a newspaper as ordered by the court. It is only thereafter if in the meeting convened for the said purpose the said schem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ehind this statutory requirement of issuing a notice to the shareholder and creditor of the company is to hear all the affected persons as the scheme proposed if accepted by Court would affect right of such interested person. Therefore, before sanctioning of the scheme is sought from the Court, such a scheme is to be placed before the creditors and shareholders of the company so that they will have an opportunity to have their say in the matter. A further safeguard is made in law by insisting that such a scheme has to be approved by three-fourth s majority, thus, the interest of class of shareholders and class of creditors is sought to be protected. In order to find out whether non-issue of a notice to a particular creditor is fatal one or not, what is to be seen is what is the value of debt the company owes to him and whether if he was present in such a meeting and if he had voted against the resolution would it have made any difference. If such a meeting notice is given in advance as required under law, not only he has a right to object to the passing of the resolution but he can also mobilise requisite support among the class of creditors. Therefore, the law requires not only pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ermission granted by Court when there is substantial compliance of section 391(2) of the Act is invalid or void merely on the ground that a creditor had not been served with a notice. The Court has to take note of all the attendant circumstance, the intention and conduct of the company, the intention of the creditors, terms of the scheme and then come to the conclusion whether to grant the sanction sought for or not. 20. It is also possible that a particular debt is not admitted by petitioner- company or the creditors name is not found in the books of account or the creditor s claim is disputed and it is the subject-matter of pending proceedings. In such circumstances, the basic question is whether the person complaining of want of notice, is he a creditor in the strict sense though no hard and fast rules can be laid down in this regard. These questions have to be answered having regard to the facts and circumstances of the case and the intention and object behind the statutory provisions and conduct of parties. If a debt is disputed and it is the subject- matter of litigation and if total value of such debt makes no significant- difference to the total amount of debt due by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er of the assets and liabilities of the transferor-company to that of the transferee-company did not depend or could be said to be incomplete without the discharge of such liability by the transferee-company. The liability of the transferee-company to pay the creditors of the transferor-company could not be a step in aid to amalgamation but would be a consequence of it..." (p. 371) Therefore, the right of a creditor is to show to the Court the scheme is mala fide and fraudulent and is likely to adversely affect him or the interest of creditors, and their intent has to be secured. But it is not a tool in the hands of a creditor to recover money or coerce the company to pay money Payment of money to such creditors cannot be said to be a condition precedent for sanctioning of the scheme. All that has to be seen is by sanctioning of the scheme, whether the interest of the creditor is protected and the scheme provides for any reasonable mode in which provision is made for discharge of that liability and in case of amalgamation whether the transferee-company is acknowledging the liability and able to discharge the said liability. When a statutory majority of creditors approve the sch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dly stated, it is held that the court has to see whether requisite statutory procedure for supporting such scheme has been complied with and that the requisite meetings as contemplated under section 391(2) has been held, the scheme is sanctioned by requisite statutory majority, the majority decision is just and fair to the class as a whole so as to ultimately bind to the dissenting members of the class, that the proposed scheme of compromise and arrangement is not found to be violative of any provisions of law, that the members or creditors are acting bona fide and in good faith, and not coercing the minority in order to promote interests adverse to that of the latter comprising of same class whom they purport to represent as a whole, is it just, fair and reasonable from the point of view of a prudent man of business. Once these requirements are satisfied the court will have no further jurisdiction to sit in appeal over the commercial wisdom of the majority of the class of persons who with their open eyes have given their approval to the scheme even if in the view of the court there could be a better scheme for the company and its members or creditors for whom the scheme is frame ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... num remains the smallest tyre company in the country, 52% of share capital is held by the transferee-company. The transferee-company is one of the largest and financial stronger tyre companies in the country. The proposed amalgamation of the petitioner into the transferee-company is in line with the global trends to achieve size, scale, integration and greater financial strength flexibility in the interest of maximising share value. The resultant entity is likely to achieve higher long term financial returns than could be achieved by the companies individually. The restructuring would enable focused business approach for the maximisation benefits to all stake holders and opportunity for future consolidation. There is no legal impediment for sanctioning of the scheme. None of the provisions of the scheme offends any law. It is not against public interest. The Calcutta High Court had sanctioned the scheme filed by the transferee-company. Under the circumstances, I am satisfied that the scheme of amalgamation/arrangement proposed by the petitioner-company is in the interest of the share-holders, creditors, workman and in public. Accordingly, I hereby accord sanction to the scheme. Hen ..... X X X X Extracts X X X X X X X X Extracts X X X X
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