TMI Blog2015 (4) TMI 448X X X X Extracts X X X X X X X X Extracts X X X X ..... has to answer as to whether their interest is protected or defeated or they have been prejudiced by not calling the meeting or by scheme. Any right for the objecting creditors can be considered only if in the particular circumstances of this case, the genuineness of the debt is proved beyond pale of doubt as binding on petitioner. To draw such an inference, there should be a counter evidence on behalf of the creditors. In this case, except relying upon the admitted lending, there is no other material to show that by virtue of such lending, the Company is benefited and the opinion formed by the Company Law Board or the Central Bureau of Investigation is erroneous. There is positive evidence throwing doubt about the genuineness as against the prima facie claim of truthfulness of the objecting creditors. The opposition of the claim by the creditors is definitely not in public interest and it is for their personal interest. The defence of the petitioner for non-consideration of those debts and dispensing with the unsecured creditors' meeting is bona fide. In view of the above factual situation, the several decisions touching on the law of winding up and the rights of the cre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rrangement between Venturbay Consultants Private Limited (hereinafter referred to as Transferor Company No.1 ), Satyam Computer Services Limited (hereinafter referred to as the Petitioner Company/Transferor Company No.2), C S System Technologies Private Limited (hereinafter referred to as Transferor Company No.3 ), CanvasM Technologies Limited (hereinafter referred to as Transferor Company No.4 ), Mahindra Logisoft Business Solutions Limited (hereinafter referred to as Transferor Company No.5) (The Petitioner Company, Transferor Company No.1, Transferor Company No.3, Transferor Company No.4 and Transferor Company No.5 collectively (hereinafter referred to as the Transferor Companies ) and Tech Mahindra Limited (hereinafter referred to as Transferee Company ) wherein it is proposed to merge Venturbay Consultants Private Limited, the Petitioner Company, C S System Technologies Private Limited, CanvasM Technologies Limited, Mahindra Logisoft Business Solutions Limited with Tech Mahindra Limited and their respective shareholders and creditors. 02. The petitioner is a leading information communications and technology Company has got wide range of expertise and also busi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the scheme. The Company is a listed Company and BSE and NSE have given no objection for scheme of amalgamation. 04. It was further pleaded that the former Chairman of the petitioner-Company Sri B.Ramalinga Raju, his brother and family members held shares in SSR Holding Private Limited controlled by them and also in the petitioner-Company. They have got about 8.27% of issued capital by 12-12-2008. On 07-01-2009 certain disclosers were made by the then Chairman Sri B.Ramalinga Raju with regard to fudging of the accounts and irregularities in conducting the business and he has stepped down as Chairman. The Company Law Board in C.P.No.1 of 2009 suspended the entire Board with immediate effect. On 09-01-2009 a fresh Board was constituted with some of the nominated members and also Chartered Accountants and Solicitors. Forensic investigation was also directed to be undertaken. The CBI has taken up investigation and Serous Fraud Investigation Office (SFIO) and SEBI have also taken up investigation. The CBI filed a charge sheet against the former promoters. SFIO has also started investigation into seven cases and the petitioner compounded the offences. The petitioner has also settled w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ms and the source of these monies is being investigated. Accordingly, the Petitioner Company does not recognize any person(s) as creditor(s) with respect to these amounts, for the purposes of these proceedings under Sections 391 to 394 of the Companies Act, 1956. 46. The group companies of the erstwhile promoters had benefited by the inflation of share price which was as a result of inflation of receipts and bank balances. It would appear that SRSR Holdings Private Limited was the principal shareholder in the erstwhile promoter's group. It is claimed that certain other group companies of the erstwhile promoters had borrowed funds from certain institutions and that the Petitioner Company's shares held by SRSR Holdings Private Limited were offered as collateral. It is claimed that the group companies of erstwhile promoters advanced the funds so raised in the market to the Petitioner Company. It is also claimed that the shares were sold by Financial Institutions and that the loans have been squared off as between lenders and group companies of erstwhile promoters. Several group companies have filed suits against the Petitioner Company and these are being contested by the Pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are said to have been filed at Bombay and sanction was obtained from the concerned Court. 10. Objecting the above scheme, about 37 creditors have filed Company Applications complaining about the injustice done to them. One of the creditors, who is the petitioner in C.A.No.862 of 2012, has filed CP No.192 of 2012 for winding-up. According to the petitioner, the petitioner has advanced money to the transferor-Company and it is reflected in the accounts and there is a prima facie establishment of the claim, which is also admitted and the claim of the petitioner is that the creditors are dubious and consequently no need to call for the unsecured creditors' meeting and the claim for ignoring the debts is not illegal. 11. According to the petitioner in C.A.No.862 of 2012, mere solvency of the petitioner is not sufficient and the refusal to pay and taking shelter under the investigation by the Central Bureau of Investigation or SFIO is not proper. In fact, a civil suit was filed for recovery of a sum of ₹ 275 Crores against the petitioner and it is a fit case for admission of the winding-up petition. This claim was objected by the petitioner solely on the ground that the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rejection of the scheme of amalgamation? 4. Whether the rights of the shareholders were not properly taken care of and the view of the majority is not binding on the minority shareholders? 5. Whether the reports of the Official Liquidator and the Regional Director disentitle the scheme of amalgamation? 6. Whether the scheme of amalgamation is fair and in the public interest and if so it has to be sanctioned as pleaded? POINTS:- 16. Before considering the rival contentions, it is necessary to take note of the necessary factors in an application for amalgamation or arrangement. The decision on this aspect is Miheer H.Mafatial Vs. Mafatial Industries (1), which has been followed consistently in the subsequent decisions relied on by both the parties and consequently the other decisions are not being referred to as they only reiterated the same law. In para.28 the Supreme Court has laid down the following broad principles while considering an application under Section 391 of the Act, which reads as under:- 1. The sanctioning court has to see to it that all the requisite statutory procedure for supporting such a scheme has been complied with and that the requisite meeti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the scheme is framed. The Court cannot refuse to sanction such a scheme on that ground as it would otherwise amount to the Court exercising appellate jurisdiction over the scheme rather than its supervisory jurisdiction. The aforesaid parameters of the scope and ambit of the jurisdiction of the Company Court which is called upon to sanction a Scheme of Compromise and Arrangement are not exhaustive but only broadly illustrative of the contours of the courts jurisdiction. 17. The above decision also considered the swap ratio and the basis for consideration in Para No.39, which reads as under:- It was submitted that the exchange ratio of equity shareholders so far as the transferee-Company is concerned works very unfairly and unreasonably to them. As per the proposed scheme 5 equity shares of transferor-Company are to be exchanged for 2 equity shares of transferee-Company. So far as this contention is concerned it has to be kept in view-that before formulating the proposed Scheme of Compromise and Amalgamation an expert opinion was obtained by the respondent-Company as well as the transferor-Company, namely, MFL on whose Board of Directors appellant himself was a members. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ic interest or not and the Court has to come to its own conclusion. In this connection the decision reported in Sesa Industries Limited Vs. Krishna H.Bajaj and Others(2) is to be relied upon. In that case even in spite of the report of the Official Liquidator opposing the amalgamation, it was ignored. 20. It is to be considered as to what are the defects with regard to the procedure and as to whether the court has to reject the scheme for the several contentions raised by the objectors. 21. Evidently, in this case, the meeting of the unsecured creditors was not called for on the ground that so-called debts are not real and binding on the Company and they are said to be tainted. The contention of the objecting petitioners is that the petitioner cannot individually decide about the nature of the debts. The purpose of calling for amalgamation meeting of the creditors is to ascertain their views and mostly it is the interest of the creditors to be safeguarded. Under Section 391(2) of the Act, the opinion of majority of 3/4th of the creditors will be binding on the others. In this case, except 37 Companies who filed the objections petitions, there is no other unsecured creditor op ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ured creditors. According to the learned counsel for the objecting creditors that even a contingent creditor or prospective creditor can be brought within the meaning of the word Creditor . Reliance is placed on the decision reported in Krishna Kilaru and Another Vs. Maytas Proiperties Limited, Rep. by its Managing Director, Hyderabad (4). Reliance is also placed on the other decisions reported in In Re M/s. Northgate Technologies Limited (5) and in G.V.Films Limited Vs. Metage Special Emerging Market Fund Limited and Others (6) to contend that the meeting of the creditors cannot be dispensed with and it is mandatory. This objection has already been answered earlier. Since the claim of the creditors is being considered based on the material, there is no prejudice for not calling the meeting. 23. Before considering the merits of all these applications, a few facts have to be noted. The petitioner-Company was in high reputation and globally recognized with respect and nobody has lifted the veil of secrecy of the affairs of the Company till 07-01-2009 when the confessional statement of the Ex- Chairman Sri B.Ramalinga Raju was addressed to the Board of Directors about the affairs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vestigation done by the C.B.I and para Nos.75 to 77 of the Charge-sheet are relevant to be mentioned hereunder:- 75. Shri B. Ramalinga Raju (A-1) in his letter of confession dated 07.01.09 has also mentioned that the Company had an understated liability of ₹ 1,230 Crores and that the same was not reflected in the Books of Accounts. Along with this letter he enclosed the details regarding the loans received from 37 companies and details about return of part of the amount to 15 companies. This clearly establishes that Shri B. Ramalinga Raju (A-1) was aware of these financial transactions between M/s SCSL and the companies and also that the other Board of Directors of M/s SCSL were kept in the dark with regard to these borrowals and the resultant liability on M/s SCSL. The accused persons fraudulently and dishonestly suppressed the liability on M/s SCSL on account of these borrowals to the investors also. 76. After the said letter of confession dt. 7.1.09 of Sri B.Ramalinga Raju(A-1), letters were issued to M/s SCSL by 37 companies who had advanced loans to M/s SCSL, the next day i.e. 8.1.09 demanding repayment of the outstanding amounts. These letters were issued by the D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ceived) for the unsecured loans, (as claimed by them) earlier management should have accounted for the same in the accounts. c. In the absence of Board Resolutions, documents evidencing acceptance of unsecured loans by erstwhile management of M/s.Satyam Computer Services Limited, the new management is justified in not crediting the amounts received from 37 companies in their names and not showing of them as creditors in Company's books and further reflecting such amount as Amounts received pending investigation suspense account (net) . In the circumstances explained above, since no creditor is identified, disclosure requirement under AS 18 as to 'Related party' does not arise. d. Ekdanta Greenfields Private Limited claimed that in spite of receipt of funds by Mahindra Satyam it was not recognized as a Creditor. In this regard Ekdanta Greenfields Private Limited submitted their statement of account maintained with Axis Bank,F.No.201, H.No.1-11-192, Kamala Arcade, sham Lal Building, Begumpet, Hyderabad - 500016. The bank statement clearly states that from 31st July, 2008 to 22nd September, 2008 ₹ 36.50 Crores have been paid to Satyam Computer Services Ltd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s have also claimed damages/compensation/interest on these amounts. Further, these companies have also filed recovery suits/petitions against the Company. The details of these claims are more fully described in the said Note. The Company has not acknowledged any liability to any of the thirty seven companies and has replied to the legal notices stating that the claims are legally untenable. The Directorate of Enforcement ( ED ), Government of India, is conducting an investigation under the Prevention of Money Laundering Act, 2002 on the amounts allegedly advanced by the aforesaid parties and has directed the Company not to return the amounts until further instructions from the ED. The Management has represented that since the matter is sub judice and the investigations by various Government agencies are in progress, the Management, at this point of time is not in a position to predict the ultimate outcome of the legal proceedings initiated by these thirty seven companies. In view of the above, we are unable to determine whether any adjustments/disclosers will be required in respect of the aforesaid alleged advances amounting to ₹ 12,304 Million (net) and in respect o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion that all these debts and particularly of these petitioners are tainted with secrecy and behind the back of the Board of Directors. That being the case, it cannot be said that the petitioners have proved prima facie case of valid debts binding on the petitioner. In fact, the genuineness of these transactions are not raised by the transferee-Company but even before the Board of Directors were appointed, the disclosure was made by the Chairman and, therefore, they continued to be under cloud. Any right for the objecting creditors can be considered only if in the particular circumstances of this case, the genuineness of the debt is proved beyond pale of doubt as binding on petitioner. To draw such an inference, there should be a counter evidence on behalf of the creditors. In this case, except relying upon the admitted lending, there is no other material to show that by virtue of such lending, the Company is benefited and the opinion formed by the Company Law Board or the Central Bureau of Investigation is erroneous. There is positive evidence throwing doubt about the genuineness as against the prima facie claim of truthfulness of the objecting creditors. 29. Added to the above ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... feree-Company. This clearly goes to show that the transferee-Company has got every interest to promote the identity, business and value of the petitioner-Company and it does not want to gain anything individually. As per the scheme, it is quite clear both the Companies are benefited. The apprehension is as to whether what will happen if the transferee-Company is unable to pay the debts subsequently. The same reason also applies to the same situation if the petitioner-Company is also unable to pay the amounts in future even if it is to be continued individually without amalgamation. The solvency of both the Companies and the potentiality after the merger is clearly disclosed in the financial statements and in fact it is not seriously disputed by any person about the competency of the transferee-Company or the beneficial advantage to the petitioner by scheme of amalgamation. The transferee-Company and the petitioner-Company as on date are sufficiently solvent to meet the demand of the creditors provided the binding nature of the debts on the petitioner-Company is established by the objecting creditors. 31. Ignoring the basic truth, a Court cannot base findings on imaginations or s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 35. In fact, it is to be noted that apart from the first transferor- Company, several other reputed Companies, viz., LIC, Birla Sunlife Mutual Fund, Reliance Funds etc., have also favoured the amalgamation. In fact, much comment against the holding of major share by Venturbay Consultants is not fair. At a stage when the scam has broken up and when the share value has fallen and after the intervention of the Company Law Board, as a strategic investor global tenders were called and the meeting was presided by Justice S.P.Bharucha, Former Chief Justice of India, and the bid of the Venturbay Consultants has been accepted and lot of money has been supplied and, therefore, the transactions as to how Venturbay Consultants became an investor with the petitioner-Company is not behind the scenes and it is open. Further-more, merely because it happens to be a subsidiary of the transferee-Company, no fraud or undue advantage can be attributed to the transferee-Company or to Venturbay Consultants. The Court cannot ignore the fact that the investment made by Venturbay Consultants was at a time when the share value has collapsed. Merely because, with the further investments and with the effort ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etent person and in fact it was done so by the Official Liquidator as per the orders of this court. 37. So far as the report of the Regional Director is concerned, the objections are relating to the fraud prior to 07-01-2009 and the consequences of pending prosecution, attachments and the required information to be furnished by the petitioner. In fact, the petitioner has accepted all the requirements of the Regional Director with regard to furnishing of the information or with regard to the prosecution and the liability undertaken by the transferee-Company. Therefore, the report of the Official Liquidator or the Regional Director cannot be taken advantage by objecting creditors and on the other hand they do certify the beneficial interest of amalgamation. I, therefore, find that there is also no violation of the requirement from calling information from the Official Liquidator or the Regional Director. It has been already observed that the reports of the Official Liquidator or the Regional Director are not final and it is ultimately for the Court to consider the effectiveness of those reports. In this case, the court was inclined to accept the conditions that are to be imposed f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ings of whatever nature by or against the transferor-Companies in India as well as outside India are pending as on the effective date, the same shall not abate or be discontinued or be in any way prejudicially affected by reason of the transfer of the entire businesses and undertakings of the transferor-Companies or of anything contained in the Scheme, but the proceedings shall be continued, prosecuted and enforced by or against TML in the same manner and to the same extent as they would or might have been continued, prosecuted or enforced by or against the transferor- Companies, if the Scheme had not been made. On and from the effective date, TML may initiate any legal proceeding for and on behalf of the transferor-Companies; and (g) The approved scheme will not have any baring on the C.P.No.1 of 2009 pending before the Company Law Board against the petitioner. A copy of this Order and scheme shall be furnished to the Companies Registrar within a period of thirty (30) days by following all the necessary requirements. Further, the petitioner shall pay a sum of ₹ 25,000/- (Rupees Twenty Five Thousand only) each to the Regional Director and also to the Official Liquidato ..... X X X X Extracts X X X X X X X X Extracts X X X X
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