TMI Blog2008 (12) TMI 399X X X X Extracts X X X X X X X X Extracts X X X X ..... will become unworkable. - CIVIL APPEAL NOS. 7115-7120 OF 2008 - - - Dated:- 4-12-2008 - S.H. KAPADIA AND AFTAB ALAM, JJ. ORDER 1. Leave granted. 2. The short question which arises for determination in these Civil Appeals is whether an application filed by the Company under section 391(1) of the Companies Act, 1956 (for short the 1956 Act ) seeking directions to convene a meeting of creditors and members to consider a scheme of amalgamation is required to be heard and decided ex parte as per Rule 67 of the Companies (Court) Rules, 1959? 3. To answer the above question we need to quote hereinbelow the relevant Rules. "Rule 2( 9 ) Judge s summons means a summons returnable before the Judge in Chambers or in Court. ****** 67. Summons for directions to convene a meeting. An application under section 391(1) for an order convening a meeting of creditors and/or members or any class of them shall be by a Judge s summons supported by an affidavit. A copy of the proposed compromise or arrangement shall be annexed to the affidavit as an exhibit thereto. Save as provided in rule 68 hereunder, the summons shall be moved ex parte. The summons shall be in F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... udge may direct, not less than 21 clear days before the date fixed for the meeting. The advertisement shall be in Form No. 38. 75. Copy of compromise or arrangement to be furnished by the company. Every creditor or member entitled to attend the meeting shall be furnished by the company, free of charge and within 24 hours of a requisition being made for the same, with a copy of the proposed compromise or arrangement together with a copy of the statement required to be furnished under section 393, unless the same had been already furnished to such member or creditor. 76. Affidavit of service. The Chairman appointed for the meeting or the Company or other person directed to issue the advertisement and the notices of the meeting shall file an affidavit not less than 7 days before the date fixed for the holding of the meeting or the holding of the first of the meetings, as the case may be, showing that the directions regarding the issue of notices and the advertisement have been duly complied with. In default thereof, the summons shall be posted before the Judge for such orders as he may think fit to make. ****** 79. Petition for confirming compromise or arrangement. Where ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the members or class of members, e.g., preference shareholders, equity shareholders, etc. of which class or classes, the meeting have to be held) of the above company, for the purpose of considering, and if thought fit, approving, with or without modification, a scheme of compromise or arrangement proposed to be made between the company and the said [here mention the creditors or class of creditors or members, or the class of members] of the said company. And that directions may be given as to the method of convening, holding and conducting the said meeting(s) and as to the notices and advertisements to be issued. And that a chairman (or chairmen) may be appointed of the said meeting(s), who shall report the result thereof to the Court. Advocate for the applicant(s)Registrar. The affidavit of...........will be used in support of the summons. [Note: Where the company is not the applicant, the summons should be served on the company, or, where it is being wound up, on its liquidator.]" "FORM NO. 34 [ See Rule 67] [Heading as in Form No. 1] Company Application No. ..............of 19....... ...........Applicant(s). Affidavit in Support of Summons I,...... ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is suggested that the meeting (or meetings) may be held at the premises of the registered office of the company or at such other place as may be determined by the Court, and on such date(s) and at such time(s) as this Court may direct; and that a chairman may be appointed for the meeting (or for each of the meetings) to be held. 11. It is suggested that notice of the proposed compromise or arrangement and of the meeting may be published once in (here set out the newspapers) and in such other manner as the Court may direct. 12. It is prayed that necessary directions may be given as to the issue and publication of notices and the convening, holding and conducting of the meeting(s) proposed above. Solemnly affirmed, etc. (Sd.) X.Y. Before me (Sd.).......... Commissioner for Oaths." 5. The appellant-company moved Company Application Nos. 354 to 359 of 2003 before the Karnataka High Court on 17-4-2003 under sections 391 to 394 of the Companies Act, 1956 in the form of Judge s Summons for Directions supported by an affidavit to hold a meeting of shareholders and members to consider the proposed scheme of amalgamation. The applications were filed stating that the applic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court had not to apply its mind or that the Court is not required prima facie to be satisfied about the genuineness or bona fides. However, it is a preliminary step. One more aspect needs to be mentioned. If hearing is required to be given to contributors, creditors and shareholders, then the entire scheme of section 391 (which is a Code by itself) would become unworkable. Further, when Rule 67 categorically states that Summons for Directions shall be moved ex parte, the question of prejudice or rule of natural justice does not come into play. However, there is a rationale for stating that the summons shall be moved ex parte and that rationale is that it is an Application for an Order for Meeting as a preliminary step at the threshold stage and at that stage it is not necessary for the Company to give notice of hearing to the creditors, members and shareholders ( see : Palmer s Company Law). Further, if one examines Rule 67 in the context of Rule 73, one finds that after Summons for Direction are issued as and when the meeting is ordered to be convened, the notice of the meeting is required to be given to the creditors and/or members or such other classes enumerated in Rul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r sanctioning any compromise or arrangement shall be made by the Court unless the Court is satisfied that the company or any other person by whom an application has been made under sub-section (1) has disclosed to the Court, by affidavit or otherwise, all material facts relating to the company, such as the latest financial position of the company, the latest auditor s 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. ****** 393. (1) Where a meeting of creditors or any class of creditors, or of members or any class of members, is called under section 391, ( a )with every notice calling the meeting which is sent to a creditor or member, there shall be sent also a statement setting forth the terms of the compromise or arrangement and explaining its effect; and in particular, stating any material interests of the directors, managing directors, managing agents, secretaries and treasurers or manager of the company, whether in their capacity as such or as members or creditors of the company or otherwise, and the effect on those interests, of the compromise or arrangement, if, and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... against it. On a conjoint reading of the relevant provisions of sections 391 and 393 it becomes at once clear that the Company Court which is called upon to sanction such a scheme has not merely to go by the ipse dixit of the majority of the shareholders or creditors or their respective classes who might have voted in favour of the scheme by requisite majority but the Court has to consider the pros and cons of the scheme with a view to finding out whether the scheme is fair, just and reasonable and is not contrary to any provisions of law and it does not violate any public policy. This is implicit in the very concept of compromise or arrangement which is required to receive the imprimatur of a Court of law. No Court of law would ever countenance any scheme of compromise or arrangement arrived at between the parties and which might be supported by the requisite majority if the Court finds that it is an unconscionable or an illegal scheme or is otherwise unfair or unjust to the class of shareholders or creditors for whom it is meant. Consequently, it cannot be said that a Company Court before whom an application is moved for sanctioning such a scheme which might have got the requ ..... X X X X Extracts X X X X X X X X Extracts X X X X
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