TMI Blog2002 (7) TMI 728X X X X Extracts X X X X X X X X Extracts X X X X ..... s issued by the company. The scheme was sanctioned by the company judge after notice to the Central Government under section 394A of the Companies Act. The drawn up order of the learned Judge shows that the Central Government through the Regional Director, Department of Company Affairs, Maharashtra, submitted to the order of the court. It is recorded in the minutes of the impugned order that the Central Government had no objection to the scheme. 2. Appeal Lodging No. 520 of 2002 is filed by the Securities and Exchange Board of India (for short the SEBI ). Appeal Lodging No. 526 of 2002 is filed by the Central Government. Along with the appeals notice of motions have been filed for condonation of delay. The SEBI has filed a separate notice of motion seeking leave to file an appeal against the impugned order of the company judge. The principal challenge in these appeals is based on section 77A of the Companies Act introduced by the Companies (Amendment) Act, 1999 with effect from 31st October, 1998. The scheme is challenged on the ground that the court has no power to sanction the scheme of this nature under section 391 of the Companies Act and the company is required to follow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icates relating to the equity shares purchased by the company shall be rendered invalid. 4.9 For the purpose of the scheme, the equity shares shall not be traded on the stock exchange for a period commencing from the record date and until the date of discharge of the consideration as provided in clause 4.6." 4. The scheme was approved by the shareholders in the shareholders meeting by an overwhelming majority of 95.69 per cent in number and 91.26 per cent in value and unanimously in the meeting of the secured and unsecured creditors. After the scheme was sanctioned the company issued option forms to the shareholders along with the cheque for Rs. 100. It seems that a total number of 94,474 shareholders have deposited the cheques or the option forms representing 91.8 per cent equity share capital of the company. The value of the cheques deposited and realised by the shareholders in response to the option is approximately Rs. 158 crores. Under the scheme option was to be exercised by 21st June, 2002. The SEBI s appeal was lodged on 19th June, 2002. The Central Government s appeal was lodged on 24th June, 2002. 5. Mr. Dada and Mr. Desai learned counsel appearing for the SEBI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appeals. Mr. Chagla submitted that neither the SEBI nor the Central Government could be regarded as a person aggrieved or a person adversely affected by the order under appeal. The Companies Act does not contemplate any notice to the SEBI nor is any right of appeal conferred on the SEBI in proceedings under section 391. Merely because section 394A contemplates prior notice to the Central Government, the section would not in law render such noticee a person aggrieved or a person adversely affected by the impugned order. Therefore even the Central Government has no right of appeal. Mr. Chagla submitted that even assuming the locus of either the SEBI or the Central Government to maintain any appeal, no cause, much less sufficient cause, is made out for condoning the delay in filing the appeal. Mr. Chagla refuted the argument of the appellants that section 77A lays down the only mode for buying-back the shares. He submitted that buy-back by a company of its shares was permissible even before section 77A was inserted in the statute book and a scheme of arrangement for buying-back shares was permitted provided the provisions of sections 100 to 104 for reduction of capital under the Comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ake into consideration the representation, if any, made to it by the Central Government before passing any order under any of these sections. On a plain reading of the provisions of the Companies Act, we are unable to appreciate how the SEBI would get right of statutory appeal under section 391(7) of the Companies Act. Mr. Dada, however, submitted that by virtue of the provisions contained in section 55A of the Companies Act, the SEBI has been empowered to administer the provisions of the sections specified in section 55A including sections 77 and 77A. Under section 621 of the Companies Act the SEBI is the appropriate authority to take steps for prosecution of any offence in regard to matters in respect of which it is the authority for administration. The SEBI was, therefore, a necessary party to the proceedings and ought to have been heard before any order was passed. Mr. Dada also submitted that under sections 11A and 11B of the SEBI Act, the SEBI is the guardian to protect the interest of investors and it is the statutory duty of the SEBI to take up any cause where investors interest has been adversely affected and when the SEBI has come to court with the specific grievance tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duty and interest to see that the interest of the investing public should be protected and that the laws are not violated. Section 394A enjoins the court to take into consideration the representation, if any, made to it by the Central Government before passing any orders under section 391 or 394. If the decision of the company court, according to the Central Government, is contrary to the law or it is of the opinion that sanctioning of the scheme of arrangement would adversely affect the interest of the investing public at large, the Central Government can be said to be aggrieved person to safeguard the interest of the investing public and can maintain an appeal under section 391(7). 12. Mr. Chagla, urged that merely because the Central Government is entitled to statutory notice does not clothe it with a right of appeal. He submitted that the Central Government merely discharges its duty of appearing before the company court to assist it at the stage of grant or refusal of sanction under section 391. The Central Government cannot be said to have been aggrieved by the order ultimately passed by the company court and would have no right of appeal therefrom and the Central Governm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the meaning of the words person aggrieved by an order made by the disciplinary committee of the Bar Council of India , two features are to be kept in the fore front. First, there is no lis in proceedings before the disciplinary committee. When the disciplinary committee exercises the power to reprimand the advocates, or suspend the advocate from practice or remove the name of the advocate, the committee does not dedde a suit between the parties. The Bar Council in placing a matter before the disciplinary committee does not act as prosecutor in a criminal case. A complainant who prefers a complaint against an advocate is not like a plaintiff in a civil suit. The complaint is examined by the Bar Council in order to find out whether there is any reason to believe that any advocate has been guilty of misconduct. The Bar Council may act on its own initiative on information which has come to its notice in the course of its duties. Second, there is no party to the disciplinary proceedings. It is because the Bar Council, the Attorney-General, the Advocate-General, as the case may be, all act in protecting the interests of advocates, the interests of the public. In so acting there is no co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hri Chagla that the Central Government has no right of appeal under section 391 of the Act. Two other decisions relied upon by Mr. Chagla have no bearing on the issue of maintainability of appeal by the Central Government. In Motilal Kanji Co. s case ( supra ), the Division Bench held that an appeal would not lie under section 202 of the Indian Companies Act, 1913 at the instance of the appellants who are neither creditors nor contributors and who have no present interest in the company but only a prospective interest to be appointed secretaries and agents if the company is made to stand on its legs as a result of the modified scheme. The Bench held that unless a person shows that he has got an interest which is adversely affected by the decree of the lower court, or has an interest in the subject-matter which is under litigation, he has no right to appeal. In M.G. Investment Industrial Co. Ltd. s case ( supra ) the question was whether the Central Government could be joined as party to the proceedings under section 391. Learned counsel appearing for the Central Government argued before the company judge that the Central Government should be joined as party to the company pet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... minority shareholders under section 402( b ) ( see Guide to the Companies Act by A. Ramaiya, (15th edn.) at pp. 962 and 963). 18. Thus, the company could purchase its shares prior to introduction of section 77A provided the scheme or arrangement, therebefore, had been sanctioned under sections 100 to 104. Section 100 does not prescribe the manner in which the reduction of capital is to be effected. Nor is there any limitation on the power of court to confirm the reduction except that it must be first satisfied that all the creditors entitled to object to the reduction have consented or have been paid or secured. Reference in that behalf may be made to Punjab Distilling Industries Ltd. v. CIT [1965] 35 Comp. Cas. 541 (SC) and Hindusthan Commercial Bank Ltd. v. Hindusthan General Electrical Corpn. [1960] 30 Comp. Cas. 367 (Cal.). 19. It is well settled that under section 391 of the Companies Act the court is invested with very wide powers to approve or sanction any scheme of amalgamation, arrangement, compromise or reconstruction. The court has power to sanction all matters which for their effectuation require a special procedure to be followed under the Companies A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 77 (read with section 100) of the Act prevents buy-back. In today s context, the group strongly believes that this section is antiquated, and goes against the long-term interests of corporate sector growth and shareholder value. Hence, the group recommends that : The new Act should provide for buy-back of shares subject to certain provisions...." 21. Section 77A along with section 77AA and section 77B have been introduced pursuant to the Working Committee s Report to provide for buy-back of its own shares by the company subject to safeguards specified therein. Section 77A insofar as it is material for our purpose reads as follows : " Power of company to purchase its own securities. (1) Notwithstanding anything contained in this Act, but subject to the provisions of sub-section (2) of this section and section 77B, a company may purchase its own shares or other specified securities (hereinafter referred to as buy-back ) out of ( i )its free reserve; or ( ii )the securities premium account; or ( iii )the proceeds of any shares or other specified securities : Provided that no buy-back of any kind of shares or other specified securities shall be made out of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isclosure of all material facts; ( b )the necessity for the buy-back; ( c )the class of security intended to be purchased under the buy-back; ( d )the amount to be invested under the buy-back; and ( e )the time-limit for completion of buy-back. (4) Every buy-back shall be completed within twelve months from the date of passing the special resolution (or a resolution passed by the board) under clause ( b ) of sub-section (2)." 22. The opening words of section 77A, viz. , "notwithstanding anything contained in this Act, but subject to the provisions of sub-section (2) of this section and section 77B, a company may purchase its own shares or other specified securities...." shows that section 77A is a facilitating provision which enables companies to buy-back their shares without having to approach the court under section 391 and sections 100 to 104 subject to compliance with the provisions of sub-sections (2), (3) and (4). Prior to the introduction of section 77A, the only manner in which a company could buy-back its shares was by following the procedure set out under sections 100 to 104 and section 391 which required the calling of separate meetings of each class of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the shareholders would not amount to arrangement or reorganisation of the capital and would not, therefore, cover section 391 read with section 100 of the Companies Act. We are unable to accede to this contention as even in cases where capital is reduced by optional sale reduction results after the option is exercised to the extent of the shares cancelled. This is as equally a reduction of capital as in the case of compulsory cancellation of shares. We do not see any distinction between the two on the aspect of the reduction. The word arrangement is of wide import and is not restricted to a compulsory purchase or acquisition of shares. There is no reason as to why a cancellation of shares and the consequent reduction of capital cannot be covered by section 391 read with section 100 merely because a shareholder is given an option to cancel or to retain his shares. In view of the foregoing discussion, the objection of the appellants based on section 77A must be rejected. Regarding question (iii) : 25. The principal attack against the scheme sanctioned by the company judge is that the scheme treats the silence of shareholders as an offer. It is contended that this is contrar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... raised we are sure that the learned company judge will deal with the same in accordance with law. 26. It appears that 2,584 option forms out of 1,44,252 have been received undelivered. Mr. Chagla has made a statement that in respect of these undelivered option forms, shareholders would be allowed to retain their shares. Mr. Chagla further stated that the company has received around 143 complaints alleging that the shareholders have encashed the cheques through inadvertence or error and even those shareholders will be allowed to retain their shares provided they return the money within two months. Further, in respect of shares held by the shareholders who have neither returned the option forms nor encashed the cheques forwarded by the company, Mr. Chagla made the following offer : "In respect of shares held by the shareholders who have returned the option form and not encashed the cheques forwarded to them by respondent No. 1, the shares shall be purchased by the respondent and cancelled as per the order of the company judge dated 10th April, 2002. The respondent-company shall keep in trust for such shareholders a sum of Rs. 100 per share plus five debentures of Rs. 10 each t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ular dated 19th January, 1996, and clause 16 of the listing agreement executed between the company and the stock exchange. It appears that the suspension of trading in Sterlite shares from 13th May, 2002, rather than from the record date of 20th May, 2002, was fixed by the Mumbai Stock Exchange itself. It is pointed out that the subsequent circular dated January 18, 2000, removes even the requirement for SEBI approval for the suspending scrip s for more than three days. Be that as it may, when the scheme has already been effected and substantially implemented it would not be proper to interefere with the order of the learned company judge on the alleged ground of violation of listing agreement. It was also argued that the SEBI (Disclosure and Investors Protection) Guidelines, 2000, in respect of issue of debentures were violated. We have gone through the record and we are satisfied that these guidelines have been substantially complied with by the company. The debentures are rated as AA and the rating was disclosed in its letters sent to the shareholders. The Western India Trustee Executor Co. Ltd. have been appointed as trustees. This fact was also disclosed in the option letter ..... X X X X Extracts X X X X X X X X Extracts X X X X
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