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TMI Blog2015 (7) TMI 1347X X X X Extracts X X X X X X X X Extracts X X X X ..... pplemental orders and directions may be given as may be made in the premises as to this Hon'ble Court may deem fit and proper." 2. Factual matrix of the case are as under: 2.1. That the petitioner company was incorporated on 17.12.1993 as public limited company in the office of Registrar of Companies under the provisions of the Companies Act. The petitioner company was incorporated for the objects which are set out in the Memorandum and Articles of Association of the company. In paragraph 5 of the petition, the main objects of the company are stated. As per the audited balance sheet as on 31.3.2008, the authorized, issued, subscribed and paid up share capital of the petitioner-company consists of the following: SHARE CAPITAL AS ON 31/03/2008 Authorised: (Rupees In Lacs) 20,00,00,000 Equity Shares of Rs. 5/- each 10000.00 50,00,000 Preference Shares of Rs. 100/- each 5000.00 15000.00 Issued and Subscribed 6,35,55,555 Equity Shares of Rs. 5/- each 3177.78 Paid UP 6,34,68,005 shares of Rs. 5/- each fully paid Up 3173.40 Add Forfeited Shares 2.63 Total 3176.03 6,66,666 15% Cumulative Redeemable Preference shares of Rs. 100/- each ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or without modification the said composite scheme of compromise and arrangement. In pursuance to the said order passed by this Court, notice of meetings were sent individually to all the equity shareholders, preference shareholders, class `A' lenders and class `B' lenders of the company together with copy of the aforesaid scheme and explanatory statement required under Section 393 of the Act and a form of proxy. Notice of meetings were also advertised as directed by this Court in the concerned newspapers. Meetings of different class of persons were held and as per the averment made in the petition, in all the different meetings, the scheme was approved by the statutory majority. 2.5. Thus, since the proposed composite scheme of compromise and arrangement has been duly approved by statutory requisite majority by equity shareholders, preference shareholders, class `A' lenders, class `B' lenders at the respective meetings, the petitioner-company has moved this petition for seeking sanction of the said composite scheme. 2.6. This Court passed an order on 23.9.2008 by which the petition was admitted and notice of admission was issued in the concerned newspapers. Notic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this Court and the same has not been approved. The petitioner-company had withdrawn the said two objections. There is no change in the circumstances after withdrawal of the said scheme. Hence, principle of res-judicata would be applicable. 2.11. The petitioner-company has not complied with the mandatory requirement of Section 391 of Companies Act of 1956. 2.12. Public notice has been issued only in Ahmedabad Edition of English daily, whereas, as per records of the petitioner-company, several persons holding substantial shares in the capital of the petitioner are located and/or residing at many places within India. Said notice is non-est in the eye of law. 2.13. Nirma Industries has not completed the requirements of takeover code and hence as per Regulation 10 of the SEBI (Substantial Acquisition of Shares and Takeover) Regulation, 1997, Nirma Industries Limited and its sister concern which hold more than 15% of the shares do not acquire any voting right. 2.14. The mandatory requirement of Section 101 of the Companies Act are required to be followed whereas the petitioner has prayed for dispensing with the same. SEBI has passed prohibitory order/direction against the directors ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on for sanction of scheme of arrangement and compromise with its creditors and shareholders. (2) Second objection is that the petitioner-company has not passed special resolution under Section 100 read with Rule 85 of The Companies (Court) Rules and, therefore, requested that the petition be dismissed. 4.1. Learned Senior Counsel Mr.Soparkar submitted that aforesaid two objections raised by the Dy.Registrar of Companies are required to be discarded in view of the fact that petitionercompany has filed additional affidavit which is produced at page 379 of the compilation. By way of the said affidavit, the petitioner has stated that the petitioner had filed Miscellaneous Application in Case No.69 of 2006 before BIFR for deregistration of reference filed earlier on the ground that the company is not a sick company anymore. BIFR, therefore, passed an order on 16.7.2014 and held that the company has ceased to be a sick industrial company and the company is discharged from the purview of SICA/BIFR. Learned Senior Counsel has referred to the said order passed by BIFR which is produced at page 380. Thus, learned senior counsel submitted that in view of the order passed by BIFR, company is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut by a compromise or arrangement between the company and its members ignoring the creditors. Now, if reduction of share capital involves repayment of a part of paid up capital or extinguish or reduce the liability on any of the shares in respect of unpaid share capital it would adversely affect the creditors. Yet the creditors would have no voice in the matter. If the procedure as provided in section 100 onwards has got to be carried out the court could not sanction reduction of share capital unless the creditors are heard and provision is made for the creditors who object to the reduction. However, if the reduction of share capital does not involve either diminution of liability in respect of unpaid share capital or payment to any shareholder of any paid up capital, the court can sanction the same without reference to the creditors. The creditors in such a case would not even be entitled to object to the proposed reduction as provided in section 102. In the instant case, admittedly, the reduction of share capital is by way of cancellation of share capital which is lost or is unrepresented by available assets. In such a case, creditors, even in a reduction simpliciter, are not ent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on may not be countenanced. Further, reconstruction entails business-wise bifurcation, which is within the purview of the arrangements contemplated under sections 391 to 394 of the Companies Act and the same is permissible. Regarding the second, third and fourth objections, the learned senior advocate has submitted that section 391 is a complete code in itself and once the scheme of arrangement falls squarely within the four corners of this section, it can be sanctioned, even if it involves doing acts for which the procedure is specified in the other sections of the Companies Act. It is submitted that it is now established and accepted in a number of cases by various High Courts and this court that the principle of single window clearance permits all other formal requirements of the Companies Act, such as approval of change of objects or any other alteration of the memorandum of association and all other consequential or incidental changes required for implementing the scheme, to be formalised in a single petition. It is further submitted that there is no requirement of paying registration fees and stamp duty, as the demerged company has already paid the requisite registration fees ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r referred to the objections filed by objector Pradip Balubhai Desai filed on 12.8.2009 and submitted that the objections raised by the said objector are required to be discarded. He submitted that the said objections have been filed with a malafide intention and ulterior motive. The same would result in delaying the pending proceedings for the sanction of the scheme which has been approved by the requisite statutory majority at the respective meetings of the shareholders and lenders. Baseless allegations have been made by the objector regarding the bonafides of the proposed scheme. Learned counsel submitted that the present scheme of compromise with the lenders is proposed by the petitioner-company which was not party to SAT proceedings. He then contended that the fact of previous proposals of compromise has been clearly stated both in the scheme as well as in the petition. The previous proposals of the scheme could not be approved by the lenders in the first case and could not be placed for financial consideration of the shareholders and creditors in the second case. Hence, the same were withdrawn. The terms of the compromise with the lenders in the present scheme are materially ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egistrar of Companies has filed the affidavit on 4.12.2008. 4.9. Learned senior counsel once again submitted that since the reduction of capital is proposed as an integral part of the scheme under the accepted principle of `single window clearance', separate procedure is not required to be followed under Section 100 of the Companies Act. 4.10. Learned senior counsel has placed reliance upon the decision rendered by the Hon'ble the Supreme Court in the case of Miheer H Mafatlal V/s Mafatlal Industries Limited reported in 87 CC 792 wherein the Hon'ble the Supreme Court has held as under: "However, the further question remains whether the court has jurisdiction like an appellate authority to minutely scrutinise the scheme and to arrive at an independent conclusion whether the scheme should be permitted to go through or not when the majority of the creditors or members or their respective classes have approved the scheme as required by section 391(2). On this aspect, the nature of compromise or arrangement between the company and the creditors and members has to be kept in view. It is the commercial wisdom of the parties to the scheme who have taken an informed decision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be. Thus, the facts on which the plaintiff relies to prove his case have to be pleaded by him. Similarly, it is for the defendant to plead the material facts on which his defence stands. The expression "material facts" has not been defined anywhere, but from the wording of Order 6 Rule 2 the material facts would be, upon which a party relies for his claim or defence. The material facts are facts upon which the plaintiff's cause of action or the defendant's defence depends and the facts which must be proved in order to establish the plaintiff's right to the relief claimed in the plaint or the defendant's defence in the written statement. Which particular fact is a material fact and is required to be pleaded by a party, would depend on the facts and circumstances of each case." 5. On the other hand, learned advocate Mr.Maulin Raval appearing for the objector mainly contended as under: 5.1. The proposed scheme is framed in the year 2008 and, therefore, at present it is a stale scheme and hence it will not work in the year 2015. During this period, number of things have been changed. 5.2. Against the order dated 5.6.2008 passed by SAT in Appeal No.74 of 2007 filed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... can be passed by this Court. 5.8. Reliance is placed on the decision rendered by the Hon'ble the Supreme Court in the case of Meghal Homes (P) Ltd. V/s Shree Niwas Girni K.K.Samiti and others reported in 2007(7) SCC 753 and more particularly observation made in paragraphs 51 and 52 as under: "51. We see no difficulty in reconciling the need to satisfy the requirements of both Sections 391 to 394-A and Section 466 of the Companies Act while dealing with a company which has been ordered to be wound up. In other words; we find no incongruity in looking into aspects of public interest, commercial morality and the bona fide intention to revive a company while considering whether a compromise or arrangement put forward in terms of Section 391 of the Companies Act should be accepted or not. We see no conflict in applying both the provisions and in harmoniously construing them and in finding that while the court will not sit in appeal over the commercial wisdom of the shareholders of a company, it will certainly consider whether there is a genuine attempt to revive the company that has gone into liquidation and whether such revival is in public interest and conforms to commercial mo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... objector is required to be discarded. Under Section 391 of the Companies Act, the compromise arrived at between the parties which had taken place after rounds of negotiation whereby the issues were settled. Therefore, merely because once the scheme was withdrawn by the petitioner-company before this Court cannot preclude the petitioner-company once again by filing a fresh scheme before this Court. With regard to contention of the stale scheme raised by the objector, it is submitted that only one shareholder has objected about the stale scheme. He placed reliance upon the provision of Section 392 of the Companies Act and submitted that creditors have not approached before this Court. Proviso of Section 391(2) of the Companies Act refers to the pendency of investigation proceedings in relation to the company under Section 235 to 351 of the Companies Act whereas in the present case, the inquiry was made under SEBI Act. SEBI has never prohibited the petitioner-company for transferring the shares of the company or dealing with the shareholders of the company. By way of the prohibitory order, the petitioner-company was restrained from accessing the securities market and prohibited from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rence Case No.69 of 2006 pending before the BIFR for deregistration of the reference on the ground that the company is not a sick company any more. BIFR passed an order on 16.7.2014 and held that the company is ceased to be a sick industrial company and that the company is discharged from the purview of SICA/BIFR. (e) The scheme of compromise and arrangement is proposed by the petitioner-company under Section 391(1) of the Companies Act, 1956. The composite scheme is produced at Annexure `C' page 37 of the compilation. (f) This Court passed an order on 16.7.2008 whereby the petitioner-company was directed to convene separate meetings of the respective shareholders and class of lenders of the company for the purpose of approving the composite scheme of compromise and arrangement. The said meeting was held and it is the case of the petitioner that it has been approved by the statutory majority in the meeting of respective shareholders and lenders. (g) The objector has raised various objections against the approval of the composite scheme proposed by the petitioner-company. 9. From the aforesaid facts, it is clear that when the petitioner has preferred this petition in Sept ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e date (for convenience if such date falls within calender month then the date shall be first day of he succeeding month). e. The company undertakes to list the DDBs on BSE/NSE before November 30, 2008 or within 6 months of the effective date whichever is earlier. f. In the event, the company fails to comply with `e' above, the company/investor undertake to make prepayment of DDBs on or before December 30, 2008. Such prepayment of DDBs shall be at Net Present Value considering the discounted rate @11% per annum." 12. In the composite scheme, part IV provides for Reduction and Reconstructing Of Capital. Clause III provides for capital reduction under the said head and clause B Preference Shares Scheme of reorganisation/redemption of 15% cumulative preference shares is prescribed. Class ii under the said head provides that: "(ii) xxxxx The amount so finalized as settled shall be discharged by issue of DDBs on the same terms and conditions to be issued to lenders. Company at its option will prepay on or before 3 1 s t Dec.2008 the amount of DDBs at 11% discounted rate." 13. Part VII provides for other terms and conditions applicable to the company and all the lenders. In i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tioner-company in the respective meetings, perhaps the respective shareholders and lenders would not have voted in favour of the scheme. 16. From the record, it is further clear that SAT passed an order on 5.6.2008 in Appeal No.74 of 2007 filed by Nirma Industries Limited and Nirma Chemical Works Limited whereby the appeal filed by Nirma Industries was dismissed. The said order is produced at page 276 of the compilation. In the said order, Nirma Industries challenged the communication dated 30.4.2007 sent by SEBI to LKP shares and Securities Limited, Mumbai, Merchant bankers of Nirma informing it that request for withdrawal of the open offer made on behalf of it is not accepted. In paragraph 2 of the said order, SAT observed that Shree Rama Polysynth Pvt.Ltd., East-West Polyart Ltd. and Ideal Petroproducts Ltd. are group companies of Shree Rama MultiTech Limited (present petitioner) and these companies are stated to be target companies. In the said order, SAT observed in paragraphs 8 and 9 as under : "8. xxxxx The above facts would seem to be enough to provide the appellants a correct prognosis regarding the financial health and prospects of the target company. Clearly, the appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Hon'ble Supreme Court by Nirma Industries Limited and another. The Hon'ble Supreme Court has also dismissed the SLP filed by Nirma Industries Limited and others. The said decision is reported in AIR 2013 SC 2360. 17. Thus, from reading of the aforesaid orders passed by SAT as well as the Hon'ble Supreme Court, it is clear that though the petitioner-company was not a party to the said proceedings, however, the proceedings were initiated in pursuance to the transactions with the petitioner-company. Therefore, the petitioner-company and its group companies were described as target companies. Thus, from the record it is clear that the petitioner-company has not placed aforesaid important details with regard to pendency of proceedings before SAT in the respective meetings of the shareholders as well as lenders. That the "Investor" Nirma Industries and its sister concern made a public offer in view of takeover code (Substantial Acquisition of Shares and Takeover) Regulation, 1997 and said Nirma Industries had offered Rs. 18.60 per share, Nirma thereafter applied for withdrawal of the said offer. SEBI had rejected the said application. Nirma Industries, therefore, prefer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under sections 235 to 351, and the like.]" Proviso of Section 391(2) specifically provides that order of sanctioning any compromise or arrangement shall not be passed by the Court unless it is specified that the company or any other person by whom an application has been made has disclosed to the Court by affidavit or otherwise, all material facts relating to the company. Here the word "material facts relating to the company" is very important. In the proviso itself, it is further stated that all material facts such as the latest financial position of the company, latest report on the accounts of the company, the pendency of any investigation proceedings in relation to the company under Section 235 to 351 and the like. I am of the opinion that the petitioner-company is required to disclose all material facts provided under the proviso and similar to such facts. Even if the investigation proceedings is not pending in relation to the company under Section 235 to 351 of the Companies Act, if any other investigation/proceedings are pending against the company, the company is required to disclose the same before the respective shareholders and lenders as well as before the Court. 18. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by section 391(1). (5) That all the requisite material contemplated by the proviso to subsection (2) of section 391 of the Act is placed before the court by the concerned applicant seeking sanction for such a scheme and the court gets satisfied about the same. (6) That the proposed scheme of compromise and arrangement is not found to be violative of any provision of law and is not contrary to public policy. For ascertaining the real purpose underlying the scheme with a view to be satisfied on this aspect, the court, if necessary, can pierce the veil of apparent corporate purpose underlying the scheme and can judiciously x-ray the same. (7) That the company court has also to satisfy itself that members or class of members or creditors or class of creditors, as the case may be, were acting bona fide and in good faith and were not coercing the minority in order to promote 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 to the class represented by them for ..... X X X X Extracts X X X X X X X X Extracts X X X X
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