TMI Blog2019 (7) TMI 1190X X X X Extracts X X X X X X X X Extracts X X X X ..... 7-2019 - Mr A.I.S. Cheema Member(Judicial) and Mr. Balvinder Singh Member (Technical) Mr. A.S. Chandhiok, Sr. Advocate, Mr Sumesh Dhawan, Ms Vatsala Kak, Mr. Pramod Singh, Ms Aditi Mohapata, Ms Sweta Kakkad, Ms Priya Agarwal, Mr Angad Baxi, Ms Tulika Bhatnagar, Advocates for appellants. Mr. Anil Panwar, Mr. Rahul Singh, Advocate for R1 and R2. Mr. Mukul Bawa, Mr Prashant Samuel, Advocates for Intervenors/R3. JUDGMENTThe matter was listed before the Hon ble High Court of Himachal The present appeal under Section 421 of the Companies Act,2013 has been preferred by the Appellant against the judgement dated 12.03.2018 passed by the National Company Law Tribunal, Chandigarh Bench vide which the scheme of arrangement with the FD holders is dismissed. 2. The brief facts of the case of that the appellant is a public limited company listed on National Stock Exchange as well as Bombay Stock Exchange. The appellant company has raised several loans from Banks as well as Financial Institutions including Short Term Loans to build new production capacities compliant to USFDA standard. The appellant could not maintain financial di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 377; 5000/- payment will be made within one year from the date of maturity; iii) All deposits of ₹ 5001/- to ₹ 20000/- shall be paid within 4 years from the date of maturity at 20% in the first year, 20% in the second years, 20% in the third year and balance 40% in the fourth years. The interest for both pre and post maturity period will be paid along with the last instalment. iv) All deposits of ₹ 20001/- to ₹ 50000/- shall be paid within four years from the date of maturity at 15% in the first year, 20% in the second year, 25% in the third year and balance 40% in the fourth year. The interest for both pre and post maturity will be paid alongwith the last instalment. v) All deposits of ₹ 50001/- to ₹ 50000/- shall be paid within four years from the date of maturity at 10% in the first year, 15% in the second year, 35% in the third year and balance 40% in the fourth year. The interest for both pre and post maturity will be paid alongwith the last instalment. vi) The company shall issue post dated cheques for first instalment to all the depositors who have submitted/surrendered the original fixed deposit receipt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion No. 23/2008 (Page 627_for modification of Scheme of Arrangement and Compromise between the appellant company and its members and fixed deposit holders and prayed to convene a meeting for the purpose and also to appoint Chairman and Alternate Chairman for convening such meeting. Hon ble High Court of Himachal Pradesh vide order dated 4.9.2008 (Page 688 692) subsequently modified on 10.9.2008 (Page 763) appointed the Chairman/alternate chairman for convening the meeting and directed that on the conclusion of the meetings, Chairman/alternate chairman shall submit their respective reports to the court alongwith result of the meetings within seven days of the conclusion of the meetings. The reports shall be duly supported by respective affidavits of the Chairman/Alternate Chairman. 6. The appellant company filed a Company Application No.49 of 2008 (connected with Company Application No.23/2008) (Page 695) in Company Petition No.5 of 2004 before the Hon ble High Court of Himachal Pradesh, Shimla seeking sanction of Scheme of Arrangement and compromise between the appellant company and its Fixed Deposit Holders. Hon ble High Court of Himachal Pradesh, Shimla vide order d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 14.9.2010 of the Division Bench of Hon ble High Court of Himachal Pradesh, Shimla the appellant company filed a SLP No.548/2011 before the Hon ble Supreme Court of India praying therein to grant special leave to appeal against the impugned order/judgement dated 14.9.2010 passed by the Learned Division Bench of the Hon ble High Court of Himachal Pradesh in Co. Appeal No.2/2009 and also prayed as interim stay that the order dated 14.9.2010 passed by the Hon ble Division Bench of Hon ble High Court of Himachal Pradesh may be stayed. However, the Hon ble Supreme Court after hearing the parties the Hon ble Supreme Court vide order dated 14.1.2011 (Page 1017) ordered We are not inclined to interfere with the impugned order/judgement. However, in the facts and circumstances of these cases, we request the learned single Judge to decide the matters as expeditiously as possible. 11. After passing of the order by the Hon ble Supreme Court, the matter was listed before the Hon ble High Court of Himachal Pradesh and as per para 36 of the impugned order dated 12.3.2018 (Page 73), the matter remained pending before the Hon ble High Court of Himachal Pradesh thereafter. In the he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9/2008; or c) in alternate remand the matter back to the Nation Company Law Tribunal, Chandigarh Bench for passing of appropriate ordrs in CP No.5/2004, RT CP(CAA) No.182/Chd/HP/2017 with CA No.49 of 2008. d) Pass any such other further order(s) as the Hon ble Tribunal deems fit and proper in the facts and circumstances of the present case. 14. Appellant stated that the Scheme of Compromise and Arrangement involving secured lenders, creditors and FD holders was submitted to Hon ble High Court of Himachal Pradesh, Shimla on 11.8.2004 and the modified scheme in respect of settlement with FD holders was filed in 2008. Appellant stated that the first motion was allowed on 4.9.2008 and the Scheme was approved by the Single Judge of Hon ble High Court of Himachal Pradesh vide order dated 4.8.2009. Appellant further stated that the appellant intimated the National Stock Exchange and Bombay Stock Exchange about the order dated 4.8.2009 of the Hon ble High Court of Himachal Pradesh and also held a Meeting of its Board of Directors on 12.8.2009 and allotted 9,24,90,413 equity shares of ₹ 2/- each to the FD holders @ 11.32 per shares as determined by SEBI form ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ibunal, Chandigarh in view of Rule 3 of the Companies (Transfer of Pending Proceedings) Rules, 2016. After hearing the matter, the NCLT passed the impugned order dated 12.3.2018. 18. Appellant stated that the once the Scheme has been approved by the Hon ble High Court, the NCLT did not have the right to dismiss the scheme as the same has gone out of jurisdiction. 19. Appellant stated that the Scheme has been fully implemented and the said shares are being freely traded on NSE and BSE since 2010. 20. Appellant stated that the order of NCLT amounts to reviewing the order of High Court which in any event NCLT did not have jurisdiction to so. 21. Appellant stated that NCLT has created two classes. One class is where the order would not affect the allotment of shares who have already traded their shares or transfer their shares and the second class of FD holders who were allotted shares and has not been cancelled. 22. Appellant stated that the NCLT could not have passed the order without hearing SEBI specially when Regulator has taken a stand that the shares once issued to the fixed deposit holders could not be reversed. 23. At last ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Scheme of Arrangement and Compromises. ROC further stated that it is settled law that the scheme under Section 391/394 of the Companies Act, 1956 cannot be made applicable on fixed deposit holders as laid down by Hon ble Supreme Court in the matter of Integrated Finance Company Ltd Vs Reserve Bank of India and Others (2015) 13 Supreme Court Cases 772. 27. ROC stated that the compromise which was under consideration of Hon ble NCLT was under Section 391/394 of the Companies Act, 1956 and it was not a scheme under Section 230(5) of the Companies Act, 1956. Therefore, it was not necessary to hear the Securities and Exchange Board of India. 28. ROC stated that the case of FD holders was presented before the NCLT by the Central Government as thousands of complaints received by the ROC against the appellant company and it was also not practically possible for the small FD holders scattered throughout the country to present their case before the NCLT. ROC further stated that violation of the order of CLB by making default in repayment as per the order of CLB is sufficient to make out the violation of Section 58A of the Companies Act, 1956. 29. ROC stated that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r of the CLB and, therefore, the appellant has no right to pick up reduced rate of interest fixed by CLB. ROC further stated that delay in repayment results in to increased interest and not in reduced rate of interest. ROC stated as regard to Income Tax Benefit to fixed deposit holders, no one can be benefited at the cost of public exchequer and every citizen should pay the tax applicable to him. 34. ROC stated that debt has to be discharged as per the agreed terms and conditions of the debt and according to the provisions of the relevant law of the land. Discharge of debt by issue of shares is not permitted by the law to the extent it is applicable to the fixed deposit holders. ROC further stated that the improved financial position of the appellant strengthen the legitimate expectation of the fixed deposit holders to get their money back. 35. ROC stated that any benefit to the banks and financial institutions cannot be given at the cost of the individual fixed deposit holders. The law has to be followed and the fixed deposit holders have to be repaid as per the terms of deposit. 36. ROC stated that the implementation of the scheme approved by the Hon bl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e High Court of Himachal Pradesh and as per directions of the Hon ble Court meeting with FD holders was convened and the Scheme was approved in the Meeting; and later on the same was placed before the Hon ble High Court and the Scheme was approved by Learned Single Judge vide order dated 4.8.2009 and the appellant allotted 9,24,90,413 equity shares of ₹ 2/- each to the FD holders @ ₹ 11.32 per share as per SEBI formula and the same was intimated to NSE and BSE on 12.8.2009 (Pages 918 and 919) and now the reversal of the Scheme after a span of 9 years vide impugned order dated 12.3.2018 unequitable, especially when no Fixed Deposit Holder or any other statutory authority objected to the Scheme. 43. Learned counsel appearing on behalf of the Respondent/ROC argued that a company petition was filed by the appellant before the Hon ble High Court of Himachal Pradesh under Section to 391 to 394 of the Companies Act, 1956 for the sanction of the scheme with the approximately 82,488 FD holders. Learned counsel for the Respondent argued that in a separate meeting convened for the purpose, the Respondent could not put forth its stand on the said compromise/arrangement for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent placed all the facts before the Hon ble Court in its appeal and after hearing the parties the Hon ble Court has passed the impugned order dated 12.3.2018. 44. We have heard the learned counsel for the parties. After going the record and hearing the arguments of parties we observe that it is fact that the Scheme was approved by Learned Single Judge vide order dated 4.8.2009 and the same was challenged before the Division Bench of High Court who at the admission stage ordered that the appellant may proceed to implement the scheme but such implementation shall be subject to the final decision in the main appeal and finally Division Bench allowed the appeal, set aside the order dated 4.8.2009 and remanded the matter to the Ld. Single Judge to hear the same afresh. Result was that the approval of the Scheme was set aside which meant that there was no approval and acts done pending appeal, which acts were subject to outcome of the appeal were rendered unprotected by any legal order. Appellant went up to the Supreme Court and the Hon ble Supreme Court upheld the order of the Division Bench of Hon ble High Court of Himachal Pradesh. As the order dated 4.8.2009 was set asid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted 4.8.2009 the scheme was fully implemented. Learned counsel for the appellant further argued that the appellant wrote to NSE on 3.12.2009 (page 1, para 1(e) of Bullet Points) for listing of shares and also wrote to BSE vide letter dated 2.2.2010 for listing of shares. Learned counsel for the appellant further argued that both the Stock Exchanges on 17.2.2010 granted their listed and trading approval and the shares are being freely traded in both NSE and BSE since 2010. Learned counsel for the appellant further argued that the ROC wrote three letters dated 7.10.2010, 11.10.2010 and 18.10.2010 (Vol IV, Page 1010-1013) to SEBI for delisting of shares but the SEBI vide its letter dated 29.10.2010 and 11.11.2010 expressed its inability to the request for delisting of shares on the ground that as the shares were freely tradeable, it was not possible to reverse the decision which would cause hardship to investors particularly, where 3rd party rights might have been created (Vol. IV, Page 1014-1016). Learned counsel for the appellant further argued that the SEBI is an expert body endowed with statutory powers of regulating listed shares, its decision in the matter should, therefore, hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - Surinder Singh, J On careful reading of the above order, we find that two directions were issued to Respondent/appellant herein. First was Respondent may proceed to implement the scheme and the second was but such implementation shall be subject to the final decision in the main appeal. We further noted that the till the passing of this order dated 27.8.2009, the appellant had not approached the Stock Exchanges for listing of these shares. We observe that the appellant while replying to an email dated 23.11.2009 of National Stock Exchange in which NSE had sought clarification, the appellant giving reply to the said clarifications vide letter dated 3.12.2009 (Page 1 of Additional Documents) requested National Stock Exchange to grant listing permission. However, the appellant has not annexed the email dated 23.11.2009 of National Stock Exchange. It is also argued by the appellant that they had written letter dated 2.2.2010 (Page 8 of Additional Documents) for list of shares allotted to FD holders. We have gone through the letter dated 2.2.2010 addressed to Bombay Stock Exchange carefully. We find that the said letter dated 2.2.2010 is reply to certain querry ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inform which scheme is approved by the Court then he replied that the Scheme was approved by the Learned Single Judge of the Hon ble High Court of Himachal Pradesh, Shimla. Then we reminded him that the said scheme was rejected by the Hon ble Division Bench of the same High Court and inform which scheme is approved. Then the appellant has no answer. 52. Learned counsel for the appellant argued that under Section 391 of Companies Act, 1956, gives powers to compromise or make arrangements with the creditors. Learned counsel further argued that there are number of categories of creditors and in the petition these categories have been shown. He has argued that compromise or arrangement can be done with all kind of creditors and there cannot be any exception for Fixed Deposit Holders only because FD holders are as much creditors of the company as any other category. Requirement of Section 391 of Companies Act, 1956 is that meetings of each category must be held separately and requisite approvals taken thereto. He further argued that since separate meeting of FD holders was convened and it was approved by the requisite majority so there is no flaw in the Scheme. 53. Le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the contention of the appellant is accepted it tantamount to making Section 58A as redundant the implication of which cannot be accepted that legislature enacted the section to protect the FD holders to be made redundant by action of the parties. This fact is also to be noted that out of 82231 depositors (Page 113) only 325 depositors participated and out of 325 depositors, 315 depositors favoured the Scheme. It is to be appreciated that out of 82231 depositors who are spread over all over India, only 325 depositors participated in the Meeting. We may keep this fact in mind that the small people who have given small deposits to the Company may be residing throughout the country and may not be in a position to attend the meeting at the place where the meeting took place. It will not be very easy for him to reach the place where the meeting is to take place. The cost of attending the meeting may be much more than the amount deposited with the company for which the remedies are to be pursued. It is precisely for this purpose that the compromise of FD Holders will run contrary to the protection provided under Section 58A of the Companies Act, 1956. Thus we are of the considered opinio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng jurisdiction in the matter and have right to make representation under Section 394A of the Act, 1956. Further SEBI has never said that the shares issued to fixed deposit holders cannot be cancelled. Further if the scheme approved is wrong and legally not valid in the eyes of law, there is no option except to reject the scheme. 58. Learned counsel for the appellant has argued that the NCLT in its order relied upon the Judgement of the Hon ble Supreme in the matter of Integrated Finance Company Ltd vs Reserve Bank of the India (2015) 13 Supreme Court Cases 772 . Learned counsel argued that Section 45 Q of the RBI Act, 1934 provides that the provisions of Chapter III B shall have effect notwithstanding anything inconsistent therewith contained in any other law. Learned counsel further argued that since Section 45QA of the RBI Act, 1934 deals only with the fixed deposit accepted by NBFC s and as such the same has no applicability to this case and argued that Morepen is not an NBFC. Learned counsel for the appellant has also drawn our attention to judgement namely Integrated Finance Company Ltd (supra) particularly para 45 and 46 of the judgement to stress his argument. L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der. Therefore, we hold that the Scheme of Arrangement and Compromise under Section 391/394 of the Companies Act, 1956 with the FD holders regulated by Section 58A of Companies Act, 1956 cannot be held to be legal. 61. Learned counsel appearing on behalf of the Intervenors argued that the applicants herein have also been allotted equity shares of the appellant company in pursuance to the scheme of arrangement implemented by the appellant company. Learned counsel for the intervenors further argued that they were not aware of the objections raised by the Respondents and were under the bonafide impression that the allotment of shares has attained finality and there was no issue pending regarding the same. Learned counsel for the intervenors further argued that the applicants herein are keen to retain the shares which they have received and do not want to part with the same and in case the order of NCLT is upheld the rights of the applicant will be materially affected. Learned counsel for the intervenors further argued that the applicants will incur adverse tax liability if the applicant s shares are forcibly taken and instead make him again wait for the repayment of the fixed ..... X X X X Extracts X X X X X X X X Extracts X X X X
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