TMI Blog2010 (6) TMI 332X X X X Extracts X X X X X X X X Extracts X X X X ..... avade for the Objectionist. JUDGMENT The Petitioner seeks an order sanctioning a scheme of arrangement between itself and four transferor-companies Cairn Energy India (P.) Ltd. ("CEIPL"), Cairn Energy India West B.V., ("CE India West"), Cairn Energy Cambay B.V. ("CE Cambay") and Cairn Energy Gujarat B.V. ("CE Gujarat"). The first transferor-company is incorporated in Australia and the others are incorporated in Netherlands. Under the scheme, the entire business relating to the Indian undertakings of the transferor-companies are to stand transferred to and vested in the Petitioner with effect from the appointed date without any further act or deed pursuant to the provisions of sections 391 and 394 of the Companies Act, 1956. 2. The Petitioner is listed on the Bombay Stock Exchange and the National Stock Exchange of India limit. The issued, subscribed and paid up capital of the Petitioner prior to 31-3-2009 was Rs. 18,96,66,78,160 comprising of 1,89,66,67,816 equity shares of Rs. 10 each. After 31-3-2009 same increased to Rs. 18,96,78,92,270 on account of ESOPs. 3. The Petitioner is primarily engaged in the business of surveying, prospecting, drilling, exploring and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eeting of the equity shareholders was dispatched individually to the equity shareholders along with the necessary documents. A notice convening the meeting was also advertised as directed by the said order. 7. A meeting of the equity shareholders was convened and held pursuant to the said order dated 8-1-2010. The Chairman reported the result thereat by filing his report dated 19-2-2010 along with the affidavit in verification thereof. The scrutineers noted 412 ballots representing 1,64,96,85,353 equity shares were cast. Two ballots representing 445 equity shares were found to be invalid. 387 equity shareholders holding 1,64,96,84,906 equity shares constituting 94.91 per cent in number and representing 99.88 per cent in value present and voting in person or by proxy or by authorised representatives voted in favour of the scheme. Twenty three equity shareholders holding 19,300 equity shares representing in value a sum of Rs. 1,93,000 constituting 5.61 per cent in number and representing 0.12 per cent in value present and voting in person or by proxy or by authorised representatives voted against the scheme. Thus the overwhelming majority of the equity shareholders voted in fav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e becomes effective. 12. Mr. Avasia s submission is well founded. The above clauses do leave the appointed date uncertain as it is left to be determined by the Board of Directors of the said companies. Indeed, theoretically there may even be different dates fixed by each company although in practical terms this eventuality may not arise. The defect however, can be cured by deleting in clause 1.9 the words ". . . of the resolution by the Board of Directors of the Transferee-Company and the respective Transferor-Companies, resolving that . . ." and the last sentence in clause 20.2. It is so ordered. 13. Mr. Avasia further submitted that clause 19.1 cannot be permitted as it stands, for it authorizes the Board of Directors of the companies to modify the scheme without the sanction of the Court. He submitted that the power to modify the same after its sanction lies only with the High Court that sanctions such scheme. 14. Although this may not have been the intention of the said companies, the clause certainly requires modification to eliminate the defect rightly pointed out by Mr. Avasia. 15. In the circumstances, clause 19.1 is modified by deleting the words "or any o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ttended the meeting, their addresses, the number of shares held by them and the way they voted. Mr. Lakhani s submission, if accepted, would require the rule to be re-written and the form to be amended. 20. Mr. Lakhani relied upon an order I passed in Chemidye Mfg. Co. (P.) Ltd., In re [2006] 69 SCL 10 (Bom.). The same were however on the basis of counsels statement and does not constitute a judgment on this point. 21. Mr. Lakhani s reliance upon the judgment of a learned Single Judge in German Remedies Ltd., In re [2005] 125 Comp. Cas. 615 1 (Bom.) is not only not well founded but against this submission. Paragraph 7 relied upon by him reads as under : "Rule 78 of the Company (Court) Rules, 1959 requires Chairman of the meeting to submit his report of the result of the meeting in Form No. 39 giving all the details including the names and address of the members who attended the meeting. The objectors submitted that the Chairman s report gives the number of shareholders, their authorised representatives and proxies who attended the meeting but, does not give the individual names and address of the members and therefore, the report is not consonance with Rule 78 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sing pursuant to this Scheme shall be adjusted by CIL against the balance in the Securities Premium Account. 11.2 The utilisation of Securities Premium Account, as above, shall be effected as an integral part of the Scheme itself in accordance with the provisions of section 78 and sections 100 to 103 of the Act without following the process(es) under sections 100 to 103 of the Act separately as the same does not involve either diminution of liability in respect of unpaid share capital or payment to any shareholder of any paid-up share capital and the order of the High Court(s) sanctioning the Scheme shall be deemed to be an order under section 102 of the Act confirming the reduction. The provisions of section 101 of the Act shall not apply." 26. Mr. Lakhani submitted that the proposal to write off by adjusting the value of the goodwill against the securities premium account is unfair and unjust. He submitted that there was no compulsion on the Petitioner to write off the entire amount of goodwill by adjusting the same from the securities premium account at one stroke. He submitted that this ought to be done in instalments. He referred to paragraph 8 of his additional affidavi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stify the conclusion that the ability of a company to issue bonus shares is thereby reduced. The very act of the share, premium account being so adjusted therefore, would not justify the Court rejecting the scheme on this ground. 30. Nor is there anything on record which indicates that the adjustment is proposed with a mala fide motive of depriving the non-promoter shareholders from being issued bonus shares in future. Mr. Lakhani did not establish that the adjustment is proposed to avoid issuing bonus shares to any of the shareholders. 31. The Petitioners undertaking to obtain the valuation report from an independent valuer to determine the fair value of CHIL is accepted. All the undertakings in the affidavit in rejoinder filed on behalf of the Petitioner dated 21-4-2010 and in particular those in paragraph 6 thereof including as to obtaining the valuation report from an independent valuer, using the same as the basis for determining the goodwill at the time of the scheme coming into effect, that the special resolution dated 2-3-2010 will not be relied on or utilized for any purpose except for adjustment of the goodwill arising pursuant to the scheme and to apply to this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of latest financial position. The proviso to section 391(2) of the Companies Act makes it abundantly clear that no order of sanctioning any compromise or arrangement shall be made by the Court unless the Court is satisfied with regard to the latest financial position. Admittedly in this case the Petitioner has filed an audited financial report as on 31st March, 1997 and not subsequent thereto. The learned Counsel for the Petitioner sought to argue that what is contemplated as latest financial position is as at the time of the meeting and also at the time of filing of the present petition. It would be rather strange in the sense that if the petition were to be heard almost after two years and in that event to say that the Petitioner need not disclose the latest financial position would render the whole objective absurd. If one were to look at the provisions regarding amalgamation scheme the time appears to be the essence in approval of such Schemes. In fact, within the time prescribed, the meeting has to be held, and within 15 days the Chairman has to file his report in this Court and within a week thereof the Petition has to be presented in this Court so as to enable the Court to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich means "at the time of final hearing of the petition". I do not however read the judgment to hold that the latest financial position should be as on the very day of the hearing of the petition or even the day prior thereto. Indeed a company can never do so. The argument, if accepted, would mean that even if the company petition is adjourned by a week, the company must irrespective of anything, furnish the latest financial position once again. This process could go on every time the company petition is adjourned. The expression "at the time of final hearing of the Petition" must be read reasonably. It seems obvious to me that so read, what it means is that a Court at the hearing of the petition must be satisfied that the financial position is disclosed as of a date which the Court considers sufficiently and reasonably proximate to the date of the final hearing of the petition. This would depend upon the facts of each case. If the financial position as of a date reasonable proximate to the date of hearing of the petition is furnished, nothing more is required unless the Court has reason to believe that even during this period, the financial position has or may have undergone suc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st fail. It was held that the scheme cannot be sanctioned if the Court comes to the conclusion that material particulars have not been disclosed to the Court by affidavit or otherwise. However, it was held that it will be a question of fact in each case whether the disclosures as required by the proviso have been made or not. In that case the objection was in fact rejected. Interpreting the word "latest", the Court held that "latest" means latest in point of time in relation to the date on which the petition is filed. Mr. Grover has thereafter relied on 60 Comp. Cas. 94 Bhagwan Singh and Sons (P.) Ltd. v. Kalawati and others. In this case the Delhi High Court dismissed the petition as having been delayed. It was also dismissed on the ground that the Company had failed to give the up to date financial position which had to be done up to the stage when the petition became due for sanction. This decision is not contrary to the judgment of the Gujarat High Court. It lays down that the latest financial position has to be given as on the date of the sanction by the Court. But the observation has to be seen in the light of the facts of each case. In that case the meetings of the credi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isclosures as required by the proviso should be made at the initial stage when the application is made under section 391(1). These disclosures are required to be made only when a petition is filed under section 391(1) for sanctioning the scheme and must be available when the Court proceeds to examine the scheme to find out whether sanction should be accorded to it or not." A perusal of the aforesaid shows that the Court has come to the conclusion that it is not possible to accept the view that the disclosure should be made at the initial stage when the application is made under section 391 of the Act. The disclosures are required at the time when the petition is filed and must be available when the Court proceeds to examine the scheme to find out whether sanction should be accorded to the scheme, comes up before the Court for sanctioning the scheme. This judgment and the earlier judgment of the Gujarat High Court in Navjivan Mills Com. Ltd. are both given by the same learned Judge viz., D.A. Desai, J. Reading all the judgments together, one can say that the relevant point of time for disclosing the latest financial position would be at the time of filing of the petition. It i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ), the company is required to disclose all material facts relating to the company including latest financial position of the company and the latest auditor s report on the accounts of the company. Relying upon the judgment of this Court rendered in KEC International Ltd. v. Kamani Employees Union 2000 (1) All. M.R. 388, it was contended that the latest financial position of the company referred to in proviso to section 391(2) is the position as at the time of the final hearing of the application i.e., at the time of sanctioning of the scheme of arrangement. It was contended that as the petition is being heard on 1st February, 2002, the company must disclose the latest financial position at the date of the hearing of the petition and not as on 31-3-2001. In response, Shri Tulzapurkar referred to and relied upon an earlier unreported judgment of this Court dated 7-12-1999 (Coram S.S. Nijjar, J.) in the matter of Blue Star Limited Company Petition No. 1007/98. Shri Tulzapurkar further submitted that this judgment has subsequently been affirmed by the Division Bench, of this Court. After referring to the judgment of the Gujarat High Court in Navjivan Mills Co. Ltd., Kollol, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... given case, the Court is not powerless to ask the further details of the latest financial position as on the date of the hearing of the petition or as on the date as near to the date of the hearing of the petition, as is reasonably practicable. This is especially necessary when there is a long gap between the date of filing of petition and the date of its hearing. In the present case, the audit was completed for the financial year ending 31-3-2001. Transferor-company is an unlisted company and hence, I am told half-yearly limited audit is not compulsory. Therefore, the last auditor s report available was only for the period 31-3-2001. That auditor s report along with the balance sheet and Annual report were annexed to the petition. This was legally correct. However, exercising Court s power to call for further and latest possible information, during the course of hearing I directed the petitioner to file the balance sheet and profit and loss account up to period ending 30-9-2001 (for which provisional balance sheet was prepared). The learned Counsel for the petitioner handed in the copies thereof both in respect of transferor as well as transferee-company. Copies are taken on reco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to look to the latest financial position of the company. The Balance Sheet, Profit and Loss Account and the Auditor s Report are important tools for the purpose of ascertaining the latest financial position of the company. It is for this reason that the Court insists that the applicant must not only produce the latest Balance Sheet. Profit and Loss Account and the Auditor s Report as on the date when the application for sanction under section 391 is made but, should also produce the latest Balance Sheet, Profit and Loss Account and the Auditors Report as on the date when the matter is actually heard by the Court, especially when there is long gap between the date of the application and when the Court considers the scheme for sanction. See in the matter of the Scheme of Arrangement of Blue Star Ltd. with Blue Star Infotech Limited, reported in 2000 (2) Com. L.J. 245 at page 255. In the present case, petitioner companies had initially produced the audited accounts together with the Auditor s Report for the year ending 31st March, 2001 both in the case of APBL as well as APIL. Despite the fact that the petitions came up for hearing before the learned Single Judge sometimes in the y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the reference was to the hearing of the ( sic ) I am conscious of the fact that in fact in Zee Interactive Multimedia Ltd. s case ( supra ) the learned Judge held that the latest audited report connotes the latest auditor s report, which is available or should normally be available at the time of filing of the ( sic ) I am however bound by the interpretation of the Division Bench. This would be contrary to Mr. Chagla s submission that under section 391 of the said Act, it is necessary for the company to file the latest financial position as on the date of the ( sic ). 40. The same however makes no difference in the present case. There is nothing to indicate that there has been an adverse change in the financial position of the company which would warrant the scheme being rejected. Further the audited standalone financial results for the year ended 31-3-2010 were in fact tendered in Court and to Mr. Lakhani also. The same are marked "X". They were also published in the newspapers. This course was considered sufficient by the Division Bench in Alstom Power Builders Ltd./Darshana Praful Kenia s case ( supra ). Mr. Lakhani has not pointed out anything adverse in this regar ..... X X X X Extracts X X X X X X X X Extracts X X X X
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