TMI Blog2003 (9) TMI 553X X X X Extracts X X X X X X X X Extracts X X X X ..... divided into 9,50,000 equity shares of Rs. 10 each fully paid. Apart from the above capital, there is forfeited amount of Rs. 99,450. 3. The petitioner was incorporated for carrying on the business of public carriers, transporters and carriers, goods, passengers, merchandise, corn-commodities and other products and goods and luggage of all kinds and description in any part of India and elsewhere, on land, water and air by any conveyance whatsoever. 4. The petitioner proposed a scheme of arrangement between Transport Corporation of India Limited, M/s. Gati Corporation Limited, TCI Industries Limited and Transcorp. International Limited for demerger in the year 1999. In consideration of the demerger of the above companies, the shareholders who were holding 100 shares each in the petitioner-company were allotted five shares each of the company. 5. The Board of Directors of the petitioner-company in their meeting held on 27-4-2002 have approved the scheme of arrangement between the petitioner and their shareholders. In pursuance thereof, the petitioner filed an application in C.A.No. 613 of 2002, wherein this Court by order dated 23-7-2002 directed the meeting of the equity ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pay consideration of the shares, which are to be reduced, cancelled and extinguished. He, therefore, prayed that the scheme spelt out in para 4( a ) be modified that instead of automatic cancellation, cancellation can be done in respect of those shareholders who desire to cancel their shares against payment. 9. Purporting to submit reply to the above, the petitioner filed memo stating that sections 391 and 77A of the Act are independent of each other, and in any manner, section 77A of the Act does not have any overriding effect on section 391 thereof. That, in fact, section 77A is merely an enabling provision, providing for an alternative method by which a company can buy-back its shares upto a certain percentage of its total paid-up capital in any financial year, and therefore, the procedure prescribed under section 77A of the Act, cannot be made applicable to the scheme under section 391 read with section 100 of the Act, which is much wider in its perspective, and permits the scheme of arrangement between the company on the one hand and its shareholders on the other. According to the petitioner, the language used in section 77A of the Act is not suggestive of the fact that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f circular G.S.R. No. 773(E), dated 11-10-2001, there is no need for compulsory voting by postal ballot. 11. As a rejoinder to the above reply, the Registrar of Companies, in his affidavit filed on 27-1-2003 states that the aforesaid contention of the petitioner is not tenable having regard to the fact that section 77A of the Act, came to be incorporated vide Companies (Amendment) Act, 1999, which came into effect from 31-10-1999, giving power to a company to purchase its own shares, which was prohibited earlier. The contention of the petitioner that section 77A of the Act is merely an enabling provision is disputed. Reiterating the very stand taken in his earlier affidavit, the Registrar of Companies states that the proposed scheme of arrangement contemplates for reduction/cancellation and extinguishments of small lots of shareholdings and payment of consideration in respect thereon in the form of cash, envisaged in the scheme which will provide an exit route to small holders is nothing but a scheme of buy-back of its own shares attracting the provisions of section 77A of the Act and SEBI (Buy Back of Securities) Regulations, 1998. Further according to him para 4 of the sche ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g provision, providing for alternative mode by which the company can buy-back its shares upto a certain percentage. The High Court of Bombay, in the case of Sterlite Industries (India) Ltd. ( supra ), upon which the learned counsel for the petitioner placed reliance, considered similar objection as was raised by the Registrar of Companies, in this company petition. The Bombay High Court having framed the point namely - Whether the company court has power to grant reorganization scheme under section 391 read with sections 100 and 104 empowering the company to buy-back the shares from the shareholders or whether section 77A is the only mode to buy-back the shares, for its consideration, analyzed the provisions of sections 77 and 77A of the Act, and held thus : "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 the provisions of sub-sections (2), (3) and (4). Prior to the introduction of section 77A, the only manner in which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt while exercising its powers under sections 391 and 394 of the Act, does not sit in appeal over the decision arrived at by the shareholders or the secured creditors or the unsecured creditors, and minutely examine whether the proposed scheme of arrangement, as approved by the shareholders or the secured creditors or the unsecured creditors, as the case may be, should be sanctioned or not. Suffice it to say, if the proposed scheme as approved by the shareholders or the secured creditors or the unsecured creditors, as the case may be is in their best interests and it is appropriate that the scheme of arrangement should be sanctioned, and it is not for this Court to delve deep into the commercial wisdom exercised by the shareholders or the secured creditors or the unsecured creditors, for this Court lacks such an expertise. 16. In Falcon Tyres Ltd. s case ( supra ), a similar question came up for consideration before the Karnataka High Court in C.P. No. 14 of 2002. The Karnataka High Court by its judgment dated 19-11-2002, quoted the ratio laid down by the Apex Court in Miheer H. Mafatlal v. Mafatlal Industries Ltd. [1996] 10 SCL 70 , which is to the following effect : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed the scheme by the requisite majority. Consequently, the company court s jurisdiction to that extent is peripheral and supervisory and not appellate. The Court acts like an umpire in a game of cricket who has to see that both the teams play their game according to the rules and do not overstep the limits. But subject to that how best the game is to be played is left to the players and not to the umpire. The propriety and the merits of the compromise or arrangement have to be judged by the parties who as sui juris with their open eyes and fully informed about the pros and cons of the scheme arrive at their own reasoned judgment and agree to be bound by such compromise or arrangement. The Court cannot, undertake the exercise of scrutinizing the scheme placed for its sanction with a view to finding out whether a better scheme could have been adopted by the parties." 17. So quoting, the Karnataka High Court, approved the scheme before it, and while approving the scheme, it held thus : "Therefore, it becomes clear that this Court cannot have jurisdiction like an appellate authority to minutely scrutinize the arrangement and to arrive at an independent conclusion whether th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of creditors, as the case may be, were acting bona fide and in good faith and were not coercing the minority in order to promise 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 of 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 or person who with their open eyes have given their approval to the scheme even in the view of the court there could be a better scheme for the company and its members or creditors for whom the scheme on that grounds it would otherwise amount to the court exercising appellate jurisdiction over the scheme rather than its supervisory jurisdiction. 19. In the instant case, as already noted supra , the proposed scheme of arrangement, was unanimously approved by 100 per cent ..... X X X X Extracts X X X X X X X X Extracts X X X X
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